Planning retirement? This is how life cycle funds can help you

n aptly chosen life cycle fund can be made more conservative by selling the stocks after retirement. By purchasing more fixed income investment the risk of earlier investments can be reduced and thus the fund would be more suitable for lifestyle.

The funds start an automatic diversion of the allocation after an investor is advised about the structural changes of the funds. Image source: Pixabay

The life cycle funds are the type of asset-allocation mutual funds which is structured according to the age of the investor.

An aptly chosen life cycle fund can be made more conservative by selling the stocks after retirement. By purchasing more fixed income investment the risk of earlier investments can be reduced and thus the fund would be more suitable for lifestyle, according to India Infoline.

Let us have an understanding of the life cycle fund:
These age-based funds are very easy to understand and the behaviour of the assets become more conservative as the year of retirement approaches, and they are invested in safer government bonds as they are less risky funds.

Although most of these funds are used for retirement investing, they can be used for any need in future.

These funds are generally used by investors with a specific goal, requiring capital at a specific utilization date.

Generally these funds are very transparent in nature and follow the traditional path of decreasing the risk as one approaches the age of retirement.

The funds start an automatic diversion of the allocation after an investor is advised about the structural changes of the funds. For say, if an investor is approaching retirement in order to reduce risk the fund is nearing its completion stage, then the fund manager allocates the fund in safe return funds.

Some of the advantages of the life cycle fund are that an investor does not have to worry about the funds. He can always relax once he has made the investment.

One should also be aware of the nature of the life cycle funds as not all funds have the same formula of investing.

There are two types of life cycle funds. These are date fund and risk fund.

Date fund
These funds work according to the date chosen by the investor. If one chooses a specific year of retirement, the fund adjusts risk appetite and fund allocation accordingly.

Risk fund
Conservative, aggressive and moderate risk appetite are the three categories that these funds are divided into. In this case, an investor can easily switch among the different risk allocations.

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