Mutual Funds: Investing for retirement? Know these facts, avail income tax exemption - What experts suggest

The small-cap mutual fund category is topping the return chart with 14.72 per cent in five years. The category has offered 16.01 per cent in the 10-year horizon, say experts.

For retirement planning, small-cap mutual funds are a better option. Experts recommend ELSS funds to all investors who are investing in mutual funds. Photo: Reuters

While investing for retirement funds, mutual funds are one of the common options that the Indian millennials opt. However, when it comes to the selection of the category, they get confused. Hence, an investor must know the categories and its features first before finding out the returns in those categories. According to the tax and investment experts, selecting small-cap, mid-cap or small-cap is not enough, one needs to know which sector is conducive for achieving the investment goal and most importantly what kind of fund selection would help avail income tax benefit under Section 80C.

Elaborating upon the retirement planning and investment Mumbai-based tax and investment expert Balwant Jain said, "Retirement has two phases — accumulation phase, utilisation phase. It is the accumulation phase during which you can invest in small-cap funds provided you have the required risk appetite and risk-taking ability. However once you have retired, though your retirement utilisation phase last almost as long as your accumulation phase, you still may have the risk appetite, which generally goes down with passing of years, but your risk-taking ability becomes almost nil as since you have already retired, your ability to earn has come to almost an end thus you can not take any risk now."

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Manikaran Singh, a SEBI registered tax and investment expert told Zee Business Online, "For long-term goals like retirement planning, small-cap mutual funds are a better option. We recommend an Equity Linked Saving Scheme (ELSS) to all investors who are investing in mutual funds with retirement in focus. It helps an investor claim income tax exemption up to Rs 1.5 lakh under Section 80C and gives near 4 per cent more returns than any other mutual fund scheme."

Speaking on the returns that one gets in various categories of the mutual funds Balwant Jain said, "The small-cap mutual fund category is topping the return chart with 14.72 per cent in five years. The category has offered 16.01 per cent in the 10-year horizon. Whereas the large-cap category has given returns of 10.12 and 12.05% during the same period respectively." However, both Manikaran and Balwant Jain maintained that the choice of the scheme completely depends on the risk appetite of the investors.

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