Investment Plans 797 views October 29, 2021

A lot of us don’t make retirement plans and end up struggling financially during their sunset years. Whereas some plan but not in the way they should and end up being on the same side. Either they get too late or invest in instruments not perfect for retirement. Well, a sound retirement planning is imperative amid the lack of regular income, which remains the case for most during such times. That can be best ensured by waking up early to investments. A late start would require putting in more to achieve the desired retirement corpus. But since fluctuations happen in investments, getting late might not give you much time to recover from downfalls (if any), hence leading to a lower than expected corpus in the end.

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The key also is to know the RIGHT instrument with which you should plan your retirement. The right instrument cannot be a single thing as you need to diversify your portfolio to stand tall against uncertainties. However, a substantial chunk should go to equities that can raise your money exponentially over time. That requires taking investment risks as ups and downs are inevitable there. Here, we will tell you how to go about planning retirement through equity investments. But before that, let’s check the reasons favouring equities for retirement planning.

Why Look at Equity Investments for Retirement Planning?

Equities are considered the best for retirement planning owing to their following features and benefits.

Exponential Growth Through Equities Can Help Ensure a Smooth Retirement Planning

Equity market movement depends a lot on what’s happening economically and politically at a domestic or international level. The solid growth of companies operating across different sectors of the economy makes a nice impression among investors who then go on a stock-buying spree, leading to higher investment returns. That’s exactly what’s happening in India’s stock market where the BSE Sensex crossed 60,000 points recently, rising immensely from 25,000-30,000 in early 2020. Many stocks have given unprecedented returns of more than 50% over a year as a result of such buoyancy.

Strong corporate earnings, a series of stimulus measures announced by the government have turned the stock market on its head. However, such steam may not prevail throughout your equity investment journey; there could be downfalls too. So, you need to go through such moments patiently and continue to stay invested to get rewarded. The point is to choose the right stock having performed brilliantly over the years. If you do so, there’s no need to worry!

Let’s Look at the Earnings Report of Top Companies

Banking, technology, metal, auto and several other sector stocks have grown with leaps and bounds so far in 2021. The surge in earnings of companies often leads to the growth of their stocks. Let’s check their earnings for the second quarter of the financial year 2020-21 that ended on September 30, 2021.

CompaniesNet Profit (In INR)Year-on-Year Growth
HDFC Bank8,834.31 Crore17.50%
State Bank of India4,574.16 Crore52%
Infosys5,421 Crore12%
Tata Consultancy Services9,624 Crore29%
SAIL393 Crore258%
L&T1,819.50 Crore-67%

L&T Q2 net profit as you see has fallen 67% year-on-year but has risen 54.10% over the previous quarter.

Note – Net profits of different companies are sourced from various news journals such as Economic Times, Business Standard, Livemint, Bloomberg Quint, etc.

Inflation-adjusted Returns Make Equity Investments Far More Impressive

One may feel great hearing returns from a particular financial instrument, but will that suffice their needs in the face of inflation that might prevail during their retirement days? This is where equity investments offering returns in line with inflation can prove useful to you during those days. If you haven’t invested in equities so far, consider putting some in the same before it gets too late for you!

Investment Flexibility Further Adds to the Appeal

The best part about equity investments is the flexibility offered by the same. There’s no restriction as far as putting and withdrawing money from stocks goes, unless you buy during the Initial Public Offerings (IPOs). The lack of restrictions opens the scope for enhanced earnings from equities. Further, you can either invest one big sum or small ones at regular intervals.

How to Approach Equity Investments Till Retirement?

Equity investments can fetch great results for you when planned smartly. The distribution of money across different stocks should vary based on your age, general economic conditions and risk appetite. In your 20s or 30s, the ability to take risks is expected to be way more compared to years later. That’s the time when you can put the maximum chunk in equities and set the tone for a hassle-free retirement journey.

As you grow older and attain the age of around 50 years, the risk appetite may reduce. That calls for lowering the equity allocation by some. A couple of years before retirement, you could withdraw the maximum from equities should you achieve or come close to the target amount. Because at that time, you don’t want the market volatility to wipe out the gains made over the years.

But, Which Instrument to Choose to Make the Most of Equities?

Yes, you can invest in equities directly or take the help of fund managers by investing in mutual funds and Unit-linked Insurance Plan (ULIP). Direct investments in equities are advised to only those who know the nuances of stock markets such as emerging trends, how things would shape up in the capital market, etc. That would require the expertise of a different kind. If you don’t have the same, consider investing in mutual funds/ULIP or a combination of both. The life cover from ULIPs is an extra offering besides the investment surplus. So, check your goal amount and investment costs before deciding the option for you. Investment cost refers to the premium (in the case of ULIPs) and the monthly SIP amount in the case of mutual funds.

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