Extended benefits

Mutual funds' retirement plans will now get the same tax benefits as pension funds
Shoaib Zaman/Money Today        Print Edition: August 2014
Extended benefits
Retirement funds now given same tax benefits pension funds

Retirement funds floated by fund houses will now be given the same tax benefits as other pension funds. The announcement, made in the Union Budget, was part of the report that a working committee at the Securities and Exchange Board of India, or SEBI, had recommended for the pension market. At present, there are only two pension schemes offered by fund houses that are eligible for tax deductions. They are UTI Retirement Benefit Pension Fund and Templeton India Pension Fund.

These schemes were launched in the 1990s and manage assets worth Rs 1,300 crore. Other asset management companies (AMCs) haven't been able to launch pension schemes as such plans need approval from the finance ministry to avail of tax benefits.

Dhirendra Kumar, CEO, Value Research says, "The proposed structure is that just as you have regular plans and direct plans, you will also have another option of retirement plan. There is no need to launch new funds for this. The benefit will be that all such funds will have a track record, making it easier for investors to choose."


Just like the New Pension System, the mutual fund-linked retirement plans will also have a lock-in period till the age of 60 years.

If the fund is not performing, then individuals will have the option to shift their investment to another retirement fund. The extension of tax benefits to mutual fund-linked pension funds is unlikely to have any major bearing on fund flows into the National Pension System, according to top officials of the Pension Fund Regulatory and Development Authority (PFRDA).

"We do not see any adverse impact on the NPS due mutual fund-linked pension funds being according tax benefits," said the acting PFRDA Chairman, RV Verma.

On the Budget proposal to accord tax benefits to mutual fund-linked pension funds, the SBI Mutual Fund CEO, Dinesh Khara, said that this could result in annual inflows of close to Rs 18,000 crore annually.

"There are 3.6 crore tax payers. Even if 10% (36 lakh) of them invest Rs 50,000 annually in mutual fund pensions plans, Rs 18,000 crore could come every year in these funds," he says.

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