SWPs, Retirement Funds Are Underappreciated, Equity Necessary To Beat Inflation: Vishal Kapoor

It is okay to take some risks for long-term goals like retirement, said Vishal Kapoor, CEO of Bandhan AMC, emphasising that equity cannot be overlooked for such purposes. Kapoor said this during a session of Outlook Money’s 40After40 Retirement Expo in New Delhi on Saturday while highlighting the power of equity, systematic investment plans (SWP) and retirement funds in retirement planning over the long term. “If you are not taking a risk, you are at greater risk,” Kapoor said, suggesting that equity cannot be overlooked in retirement planning.

With an example, Kapoor explained that if a person invested Rs 1 lakh in a debt fund 15 years ago, the returns would be only 4.7 per cent, or a corpus of Rs 2 lakh. If he had invested it in equity, the post-tax returns would be 12.5 per cent, or a corpus of Rs 7.5 lakh.

"If it's not beating inflation, the chances of your money running out are very high, unfortunately, which is why I say, the risk is good. Unless you don't take risk, you're putting yourself at a much greater risk," Kapoor said.

On cashflows, Kapoor cited an example of a person with a retirement corpus of Rs 2.2 crore, but he didn't anticipate certain expenses like house renovation and visits with family overseas. His annuity of Rs 1.5 lakh won't cover his costs in the long run. The key is to have flexible access to funds to manage life's ups and downs.

Kapoor says 33 per cent of investors feel that whatever they have put together is not enough and may not last beyond five years of their retirement journey. This is especially important when even 90 per cent of Indians over 50 regret not investing early for retirement.

The number of centenarians over 100 years of age is increasing. In 2086, life expectancy will reach 80, he said.

Power of Compounding

"Power of compounding is the eighth wonder in the world...There are examples of how you can use compounding to your advantage. To illustrate it, he said, "I think everyone knows that, right? So if you've invested Rs 10,000 in 15 years, it would have added up already to Rs 40 lakh. If you had started ten years before that, and invest religiously for 25 years; the corpus would be Rs 1.8 crore. In 35 years, it would have been a whopping Rs 6.4 crore.  That's the magic of compounding," Kapoor said.

Retirement Fund & SWPs Under-Appreciated

Kapoor said the retirement fund is an under-appreciated category and a solution targeted at specific needs. It offers an open-ended mutual fund with a five-year lock-in period to encourage long-term holding. The fund uses dynamic asset allocation to take a moderate risk and aims to beat inflation with minimal volatility. It simplifies retirement planning by keeping the product simple, Kapoor said.

The SWP offered by mutual funds allows you to manage cash flow effectively while maintaining full access to your funds. It will enable you to choose when and how much to redeem, rather than an annuity pension plan that restricts your access to your retirement corpus.