How to create retirement corpus through mutual funds
Creating a retirement corpus of Rs 5 crore or even Rs 10 crore may seem like a daunting task for a middle-class salaried individual, but a systematic investment approach can make the journey more manageable. Starting early and maintaining consistent investment discipline are key factors in achieving this long-term financial goal.
Mutual Funds: A simple and effective tool
One can create such a corpus through mutual funds—a no-frills investment option that provides exposure to equity, debt, gold, and silver. A well-planned investment strategy involving long-term mutual funds, index funds, and a diversified portfolio can help build the required corpus over time.
Step-Up Investment Strategy: A smarter way to invest
A step-up investment strategy—gradually increasing the monthly SIP amount as income grows—can ease the pressure of retirement planning. Starting with a modest contribution and increasing it by a fixed percentage every year can deliver substantial long-term results.
For instance, someone who begins investing at the age of 35 has a 25-year horizon to accumulate the target amount. Assuming an annual return of 12%, one can start with a monthly SIP of Rs 12,000 (with a 10% annual step-up) to reach Rs 5 crore in 25 years. A 10% step-up SIP means increasing the monthly SIP amount by 10% every year.
If the investment horizon is longer—say 30 years—one can start with a SIP of just Rs 6,200 (with a 10% step-up) to reach a retirement corpus of Rs 5 crore at an average 12% return. Delaying retirement planning often leads to a heavier investment burden later in life, as catching up would require more aggressive contributions.
Portfolio Allocation: Balancing Growth and Stability
A suggested allocation mix could include large-cap, mid-cap, and small-cap equity mutual funds to maintain a balanced, growth-oriented portfolio.
“Equity mutual funds—especially Flexi-cap funds—should be the foundation of long-term wealth creation,” says Ajay Kumar Yadav, Group CEO and CIO at Wise Finserv (Private Wealth).
“These funds empower fund managers to dynamically allocate across large-cap, mid-cap, and small-cap stocks based on valuations and macro fundamentals,” he adds.
Investors may also consider balanced or multi-cap funds, which offer automatic rebalancing and diversification. Balanced funds typically follow a 70:30 equity-to-debt allocation, offering stability along with growth potential. Multi-cap funds, while more volatile, can generate higher returns in a rising market.
A slightly more aggressive portfolio might consist of two multi-cap funds—one with a mid-cap focus and another with a small-cap focus—offering higher returns over the long term. Even those who begin investing later can still aim for the Rs 5 crore mark by increasing monthly contributions.
For example, a 15-year plan with a monthly investment of Rs 45,000, along with a 10% step-up option and 15% average return, can take you closer to a Rs 5 crore corpus.
For those planning over 30 to 35 years, a diversified portfolio could include around 40% in index funds mirroring the Nifty 50 and Sensex, with the remaining 60% equally split between mid-cap and small-cap funds.
“As you approach retirement, gradually shifting towards Hybrid, Multi-Asset Allocation, and Debt Funds is prudent to reduce volatility and preserve capital,” Yadav advises.