Invest in mutual funds for the sunset years- Business News
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Invest in mutual funds for the sunset years

Though they are a repackaging of existing fund types, mutual fund retirement plans do help investors take a disciplined view of their sunset years.

 Jinsy Mathew   
  • February 26, 2016  
  • |  
  • UPDATED   16:58 IST
Photo: Vikram Sharma
Photo: Vikram Sharma

DBS, in its December 2015 India chapter report 'On Planning for a Successful Retirement', observed that 77 per cent Indians planned for their retirement and 40 was the average age they started planning for the same. To help them achieve their retirement goals, mutual funds too have come forward with multiple schemes that encourage disciplined and systematic investment.

Mutual Fund Options

  • UTI Retirement Benefit Pension
  • Franklin India Pension Plan
  • Reliance Retirement Fund
  • HDFC Retirement Savings Fund
  • Tata Retirement Savings Fund

How it works
  • Every retirement plan comes with a fixed mandate specifying feasible proportion of debt and equity exposure
  • Investment can either be lump sum or SIP
  • If investing via SIP, a step-up facility allows investor to increase the amount of monthly installment by a certain fixed amount at pre-defined intervals.
  • Two of the oldest schemes (options 1 & 2) come with only a 40% cap on investment in equity
  • The next two, which are relatively new, have various sub-plans, offering equity, hybrid debt and/or hybrid equity plans
  • The plans come with a lock-in period of 3-5 years and have an exit load from 1-3 per cent on redemption before age 58 or 60
  • Barring Option 5, investments in all other schemes are eligible for tax break under Section 80C
  • On maturity, the applicant can either withdraw full amount or opt for regular income in the form of dividends or systematic sale of units
  • Certain fund houses provide an auto transfer facility within their schemes, wherein the investor can switch funds from one scheme to the other any number of times

Should you buy?
  • Seasoned investors with exposure to markets via mutual funds as part of asset allocation can give these plans a miss
  • These schemes are in effect repackaging of the existing fund types, coaxing investors to follow a disciplined saving pattern for their sunset years
  • The critical advantage is that on maturity there is no compulsion to go for an annuity plan as with National Pension Scheme
  • These schemes are very liquid compared to options available from insurance companies and NPS, though the five-year lock-in and exit load are dampeners.
Experts view

VPF/PPF savings are considered the most important source of income post retirement. However, Indians are also exploring avenues like investments and annuities, insurance and property rental income. We saw this sentiment mostly consistent across India's top six metros.

Shantanu Sengupta, Head, Consumer Banking, DBS Bank, India

Follow the writer on Twitter @jinsymathew