Reasons you need Equity Investments to save for your Retirement

Equity investing, traditionally dismissed as gambling, has seen a massive surge in popularity of late. A mutual fund is a financial vehicle involving a pool of money collected from different investors to invest in assets like bonds, stocks, and other securities. It provides various benefits – professional money managers operate mutual fund portfolios using state-of-the-art equipment, thereby significantly reducing the risks associated with investing in direct equity.

Today, an investor can purchase mutual funds online and choose to opt for a Systematic Investment Plan, more popularly known as SIP. A SIP allows an investor to invest a pre-determined amount of money at fixed intervals in the selected mutual fund scheme. SIPs help the investor invest in a timely manner and benefit in the long term due to cost averaging and compounding without worrying about changing market dynamics.

When it comes to long-term investing, investing regularly in equity and, more importantly, increasing and balancing your investments periodically can earn you a shot at exceptional returns and help achieve sufficient wealth for a comfortable and fruitful life post retirement.

Why invest in equity for retirement?

  • Inflation

The cost of living increases with each passing year. For example, if your current monthly household expenses are Rs 50,000, considering an inflation rate of 6 percent, your household spending will inflate to about Rs 2.87 lakhs per month after 30 years. Investing in equity can help you earn returns that exceed the rate of inflation. In other words, you will comfortably be able to accommodate the rise in the cost of living.

  • Improved liquidity

Old age is unpredictable and having a certain measure of liquidity during retirement is a must. Most equity mutual funds have a nominal or zero lock-in stipulation. This means you can redeem a few or all of your units any time without paying a penalty, thereby allowing you to invest in lucrative funds without compromising on liquidity.

  • Tax savings

You can save on capital gains tax by investing in equity mutual funds like ELSS. These funds feature a lock-in period of 3 years, which is shorter than a tax-saving fixed deposit of 5 years. Annual returns of up to Rs 1 lakh are entirely tax-free under Section 80C of the Income Tax Act. For earnings more than Rs. 1 lakh per year, only the additional amount is taxed at 10%.


As a general rule of thumb, 100 minus your age is the percentage of your portfolio that you should allocate towards equity investment. Thus, if you’re 30, it is advisable to allot up to 70% of your portfolio to equity. One must also realize that all equity shares are not the same. They can be broadly classified into three categories based on market capitalization – large caps, midcaps, and small caps. While large cap shares are less volatile, they tend to deliver lower returns than midcaps and small caps over the long term.

Investing in equity is lucrative, provided you do your research. For investors who don’t have the time or inclination, the Tata Capital Moneyfy App can be an excellent tool for easy and efficient tracking of budgets and managing their expenses and investments. Also advisable is to consult a SEBI Registered Investment Advisor to help build your investment portfolio better.

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