When you are in school, you start dreaming of the things to come in your life. What you want to become and how you want to lead your life. Once you start working and earning money, you most likely think about what you can do with the money that you earn, how you can keep it safe, and how you can grow it to meet your various goals. These goals generally include going for a vacation, buying a car, buying a house, and saving for your children's education and marriage. More often than not, retirement does not really form a part of your initial goals. However, retirement planning should be one of your primary goals.
Importance of retirement planning
People are living longer, inflation is eating into your savings, and things are in general getting more expensive. Further, not only is medical inflation increasing, your need for medical assistance is also likely to increase as you age. All these factors have made it important for you to plan for your future and ensure that in your retirement years, when your income is likely to reduce, you can maintain a good and respectable lifestyle. This means that retirement planning is an essential part of your financial plan. An ideal retirement plan should be done early on and be agile enough to adjust to changes in income and requirements during your working years. From that perspective, a Balanced Advantage Fund (BAF) can be an optimal choice for retirement planning.
Why choose a balanced advantage fund for your retirement planning?
A balanced advantage fund, is a type of a mutual fund investment that falls under the category of hybrid mutual funds. It typically shifts exposure between equity and debt investments based on certain investment criteria that has been previously decided by the fund management team and depending on market conditions. When equity markets start going up, BAF can invest a higher amount in equities and take advantage of the growth opportunities that they offer. On the other hand, when equities start to fall, it can dynamically move a larger proportion of portfolio investments to debt instruments. This way, BAF can actively protect the portfolio from sharp movements in the equity market and limit losses.
From a retirement planning perspective, it can add value to your portfolio in several ways.
- It takes care of asset allocation: It is well known that by allocating your portfolio investments across multiple assets like debt, equity, and gold can help you diversify your portfolio risk. However, deciding on when to invest and how much to invest in each asset class can be challenging. BAF automatically takes care of asset allocation requirements as it invests in equity, debt, and gold and dynamically keeps shifting investment exposure.
- It has the potential to generate good long-term returns: Equities are considered as vehicles of long-term growth. However, due to their inherent volatility, most investors prefer to avoid direct exposure to equity investments. BAF can give you the desired exposure to equities and potentially help you reap the long-term benefits of equity investing.
- It provides downside protection: Inarguably, your retirement portfolio needs to grow to meet your needs during your retirement period. At the same time, you cannot risk losing the money that you have kept aside for retirement. Through exposure to debt investments, you can enjoy the benefits of equity while protecting the downside risk of your portfolio.
- It is agile: The best part about BAF is that it can dynamically shift exposure between equity and debt investments. This way, you can reap the benefits of upward moving markets and protect your portfolio from downward moving markets.
- It is tax optimised: BAF is taxed like an equity fund. This means that short-term (less than 1 year) gains are taxed at 15% while long-term (more than 1 year) gains in excess of Rs. 1 lakh are taxed at 10%. From a taxation perspective, investing in BAF can be more advantageous than investing separately in equity and debt funds and then moving in and out of these investments to take advantage of changing market situations.
A balanced advantage fund meets all the imperatives of an ideal retirement plan and is an easy and simple way to invest for retirement planning. You can either invest a lumpsum amount in a balanced advantage fund or you can choose to start an SIP. In both cases, it is important to start investing as early as possible and stay invested for the long-term.
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Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
