Traditionally investors keep putting money in a savings account or a fixed deposit to save for their retirement. But these investments provide low returns and are not sufficient to sustain your retirement expenses. Hence you must think about investing in better investments instruments that will provide you with good returns in the long-term. Your accumulated savings should be able to generate an income that can partially replace your monthly income post-retirement. Here are some good investment options that will provide you with an avenue to replace your salary with income from investments.
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Hybrid funds invest in both equities and debt instruments to enable maximum diversification along with assured returns. Investors may opt for hybrid funds according to their risk preferences and investment objective.
These funds are an ideal investment option for people who want to achieve wealth appreciation in the long-run and generate income through a balanced portfolio in the short-term. In hybrid fund, the fund manages allocates your investments in debt and equity in varying proportions depending on your investment objective.
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You may also invest in SIP mutual fund if you want to replace your salary with income from investments. The SIP allows you to deposit a fixed amount at regular intervals and invest the money in your preferred mutual fund scheme. You can also choose to deposit a lump sum through a one-time investment option if you have surplus funds that you can invest right now.
SIP investment will help you if you are expecting to replace your income with a regular flow of money in future. However, this is only possible when you invest your money for a longer tenure of 10 to 20 years. The key to success in SIP mutual fund is choosing a good scheme. You fund manager will help you in identifying a good scheme based on your risk appetite and age. You are likely to get 12% to 15% annualized returns by investing in SIP.
Equity funds are known to generate the highest returns among all categories of mutual funds. To earn returns in line with your expectations you need to select equity funds carefully. Though we often hear that such investments must be based on your risk appetite, age is an important factor in deciding your asset allocation. Even when you are investing in equity you must keep in mind that younger investors should have higher equity allocation whereas older investors should have lower equity allocation. According to the experts, you must not invest in aggressive equities if your holding period is less than 3 years.
Ideally, your income has three main purposes namely expenses on your necessities, building an emergency fund and investments. Now investments can be of various types like health and term insurance and investments meant to grow your money. If you can save 40% of your income then 20% of your savings should go towards your investments. Now you investments encompass everything starting from FDs, PPF to mutual funds.
Saving a small portion of your monthly income say 10% in mutual funds will go a long way into future wealth creation. Investments in a mutual fund must be in tune with your financial goals. You can arrive at an amount you would like to have at retirement depending on the funds you choose, your goals and the time horizon.
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Here is an age-wise explanation of how you can achieve this target:
-At Age 25: At this age, the average monthly salary if 25,000. If you can contribute 10% of your income towards your retirement kitty you will be able to generate 86 lakh at retirement. If you increase your savings by 5% with an increase in income then you can translate it into a monthly income of Rs. 18000 which is 71% of your current income.
-At Age 35: The average income of professionals at this age if Rs. 80,000. If you contribute 20% of your salary towards your retirement fund you will be able to amass 1.65 crores at retirement. It will help you to cover 45% of your current salary post-retirement. You will have to hike your contributions by 7% each year to generate an income that covers 75% of your current salary.
The above calculations are based on assumptions that you retire at 55 years and inflation rate of 5% per year. You will be able to generate this income if you reinvest your retirement corpus in bank fixed deposit at a 7% interest rate.
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