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Advait had just turned 23 when he began working with a large IT firm, which paid him a handsome salary. While his colleagues spent almost all their income on upgrading their lifestyles, travelling and partying, Advait was focused on setting aside and investing a portion of his salary each month. He had picked up this habit from his parents, who were both private sector employees – given the lack of a pension, they had begun allocating funds to their retirement corpus from the time Advait was young. And this helped him realise the importance of planning and compound interest when investing for financial goals such as secure retirement.

You may wonder why someone aged 23 should be so fiscally prudent, especially regarding retirement, which may appear so far off. As Pietros Maneos once said, “A penny saved is just a penny earned, unless of course you double that penny every day for 30 days, which is then $5,368,709.12.”

Retirement planning is a journey that must be marked by financial foresight, smart investment decisions, and a clear vision of a comfortable and secure future. You cannot invest all your money in riskier assets like equities in the quest for returns, and neither should you park all your funds in a fixed deposit, given the rising inflation and the comparatively low interest rates, which will end up eroding your wealth in the longer term. In investing, one strategy has gained considerable attention for its potential to help individuals achieve their retirement goals with lower costs and less stress, and that is index funds. Let us understand why index funds make an excellent choice for retirement planning.

What are index funds?

Index funds are a type of mutual fund or exchange-traded fund (ETF) that aims to replicate the performance of a specific market index, such as the Nifty 50. These funds are passively managed, meaning they do not rely on active stock selection by a portfolio manager. Instead, they mirror the holdings and weightings of the chosen index. The key principle behind index funds is simplicity – rather than attempting to beat the market, they strive to match its performance. This approach has several notable advantages that make index funds an attractive option for retirement planning.

Read: 7 things you must know about index fund

Index funds in retirement planning

First and foremost, index funds are known for their cost-efficiency. Since they do not require the expertise of active fund managers or extensive research, they typically have lower management fees and expense ratios, translating to more of your money working for you over time. For financial goals like retirement, which are usually a decade or more down the line, the lower costs depicted by index funds can be an enormous bonus since high fees can eat away at your corpus. Secondly, when you invest in index funds, your portfolio gets diversified automatically, given the broad market or segment exposure offered by benchmarks like Nifty 50. This diversification helps spread risk and reduces the impact of poor-performing individual investments.

Another advantage of index funds is their consistency. The objective of index funds is to track an index’s performance, and this consistency can be particularly reassuring for retirement planning, as it minimises the uncertainty associated with actively managed funds. The passive nature of index funds is also a boon for retirement funds because managing investments can be stressful, especially as you near retirement. Index funds require less active decision-making, reducing the emotional toll often associated with market volatility. A key aspect also revolves around the historic performance of many index funds, which have outperformed actively managed funds, especially large cap funds, over the long term, making them a reliable choice for building wealth for retirement.

How to invest in index funds

Investing in index funds for your retirement plan can be done simply and efficiently by –

• Defining your retirement goals: Begin by determining your retirement goals, which involve setting the age at which you plan to retire, envisioning your desired retirement lifestyle, and estimating the income you will require during retirement.
• Evaluating risk tolerance: Take into account your risk tolerance, which may be influenced by factors such as your age, financial circumstances, and comfort level with market fluctuations. Index funds offer a range of options, from conservative bond indexes to more aggressive stock indexes, enabling you to align your investments with your risk tolerance.
• Selecting suitable funds: Conduct thorough research and choose index funds that best align with your retirement goals and risk tolerance. Look for funds with low expense ratios and a track record of effectively tracking their respective indexes.
• Opening an investment account: Open an investment account with a brokerage or financial institution. Many online platforms provide easy access to a wide variety of index funds.
• Emphasising diversification: While index funds inherently offer diversification, you can further diversify your portfolio by investing in multiple index funds that represent different asset classes, such as stocks, bonds, and international markets.
• Establishing automatic debits: Consistent contributions over time can help your retirement savings grow steadily. Set up automatic transfers to your investment account to ensure that you consistently add to your portfolio and benefit from the power of compounding interest.
• Rebalancing when necessary: Regularly review your portfolio and rebalance it, if required, to maintain your desired asset allocation. Rebalancing ensures that your investments stay in line with your long-term goals.

Retirement planning is a journey that requires careful consideration, sound strategies, and disciplined investing, and index funds have emerged as a powerful tool. By embracing index funds and aligning them with your retirement goals, you can enhance the likelihood of achieving the comfortable and financially stable retirement you deserve. Remember, the key to successful retirement planning is starting early, staying committed, and making informed investment decisions along the way.

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If you are reading this, there is a high chance that you know about mutual funds or have already invested in mutual funds. Mutual funds are investment vehicles that pool investors’ money together and invest in a diversified portfolio of securities, such as stocks, bonds, and other assets. One key aspect of mutual fund investing is the nomination process. This is the process that allows investors to designate a person or entity to receive the benefits of their investments in case of their untimely demise.

However, we have seen many instances where investors may fail to nominate a person to receive their mutual fund holdings after death. Moreover, they might need to remember to update their nominee details after marriage. This can lead to various complications and legal issues, as the distribution of the deceased investor’s assets may be subject to lengthy legal battles or delays. In such cases, the mutual fund company may be required to freeze the investor’s account until the rightful heirs are determined, resulting in a loss of investment opportunities and potential gains.

In this article, we will look at the steps you need to take to claim the mutual fund units when there is no nomination so that mutual fund investments are seamlessly transferred to you after the death of your loved one.

Here are the documents that you will need to make a claim:

1. Transmission Request Form (Form T3) for Transmission of Units to your account
2. Death Certificate of the deceased unitholder(s) in original or photocopy duly attested by a Notary Public or a Gazette Officer.
3. Copy of PAN Card or guardian if the claimant is a minor.
4. KYC Acknowledgment or KYC Form of the claimant. In the case of a minor, the claimant form of the guardian will be required.
5. Cancelled cheque with your name pre-printed or a copy of your recent bank statement or passbook. It should not be more than three months old.

In addition to these documents, you will need to take care of a few formalities depending on the amount of money you are claiming. The process is a little easier if the amount is less than ₹ 2 lakhs.

Here are additional requirements if the transmission amount is up to ₹2 Lakh:

1. The Bank Manager needs to verify your signature, as indicated in Annexure-Ia. In the case of minors, the guardian’s signature must be verified (for an account in the minor’s name or a joint account with the guardian).
2. Any appropriate document that indicates the relationship between you and the deceased investor.
3. As per Annexure-II, Bond of Indemnity needs to be provided by all legal heirs to transfer ownership of units without a legal representative. However, the bond of indemnity is not required if you submit the Succession Certificate or Probate of Will or Letter of Administration where you are named as a beneficiary. In this case, an affidavit as per Annexure-III is sufficient.
4. Each legal heir must submit an individual affidavit, as stated in Annexure-III, to be recognized as an heir.
5. The NOC from other legal heirs as per Annexure-IV should also be provided, as applicable.

Now, if the transmission amount is more than ₹2 lakhs, in that case, you need the signature on the transfer to be attested by a Notary Public or a Judicial Magistrate First Class (JMFC). If the claimant is a minor, then the signature of the guardian needs to be attested.

In addition to that, individual affidavits need to be given by each legal heir along with a notarised copy of the probated will or succession certificate or letter of administration or court decree in case of Intestate Succession.

So, it is best to nominate the right person so that your beneficiaries don’t have to undergo all these tedious processes. And, if you are the heir, you can request them to check if they have nominated the right person and revise it if it needs to change.

Recently, the market regulator, The Securities and Exchange Board of India (SEBI), has made a new rule which states investors should submit a nomination or give a signed declaration to opt out of the nomination. This option will be available to investors who subscribed to mutual fund units on or after August 1, 2022. The folios will be frozen for investors who don’t comply with it. The deadline for this exercise is March 31, 2023.

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