Financial independence in the post-retirement era is one of the most looked out objectives for millions of investors. To cater the retirement planning goals, various AMCs in India have mechanised plans for this specific purpose in a convenient, reliable and innovative manner. Every retirement fund follows a different strategy to enhance the financial strength of retirees.
Retirement mutual funds aim to provide financial assistance to the retirees by gathering the capital during the earning age of the investor. These funds follow an aggressive style of investment by selecting high-risk stocks in the portfolio when the investor is in the young and earning stage. As retirement is mostly more than 15 years away from such investors, high-risk stocks add significant value to the investment allowing more capital to be built for retirement planning.
As the investor approaches the retirement age, the corpus is generally shifted to a moderate or conservative plan of the same scheme which has a less risky portfolio. When the age of retirement is reached, the investor would’ve gained enough funds through the aggressive plan and hence a defensive portfolio can conserve the gathered amount and add regular incomes through debt securities. In simple words, the risk in the portfolio of retirement planning fund keeps reducing as the garnered amount through high-risk tools increases. These funds allow redemption either as a lumpsum or through periodic withdrawals which act as a pension to maintain the financial stability of the investor in the post-retirement era. These funds have a lock-in period of 5 years and charge exit load if redemption is made before retiring or reaching 60 years of age.