Retirement plans

Investors will soon have many options to invest for their retirement. Several mutual fund houses, such as SBI, Reliance, Axis, DSP BlackRock, among others, are getting ready to launch their retirement products. Only three fund houses – UTI, Franklin Templeton and Tata – currently offer retirement plans in the country. Mutual funds have been clamouring for approval of their retirement products for a long time. They also wanted these products to be included in the Section 80C basket, which allows tax deduction of up to R1.5 lakh on certain investments. Finally, their prayers have been granted. Until recently, only insurance companies were allowed to offer pension products in India.

A cursory look at the offer documents reveal that these schemes offer various investment options to investors. Depending on their risk profiles, investors can choose different combinations of equity and debt. Typically, the most aggressive investment option would have maximum allocation to equity and a very conservative portfolio would have maximum allocation to debt. A combination of debt and equity would take care of the risk profiles that fall between these two extremes.

These various investment options shouldn’t be confusing for a regular mutual fund investor. An investor can figure out the specifications of a plan by looking at the equity or debt component in it. A plan with 65-100 per cent equity allocation is like any equity-oriented fund. Similarly, a plan with 90-95 per cent debt allocation is a pure debt plan. Mutual fund investors may also find investment allocations similar to balance funds, MIPs and so on. All an investor has to do is to pick an investment option that matches his risk profile and investment objective.

Since these schemes are expected to pool savings for retirement, you have the option to lock-in the money till your retirement or redeem it before that. To discourage investors from exiting from the scheme before their retirement, fund houses have lined up stiff exit loads for early redemptions.

Reliance’s product, apart from the two existing retirement funds from UTI and Templeton, qualifies for tax deduction under Section 80C. Other fund houses are also hopeful of getting similar exemption.

However, this is likely to pose a serious challenge to common investors as most of them typically exhaust most of the available limit under Section 80C with their EPF contributions and life insurance policies. ELSS is also going to compete with these retirement products. That could make the choice tricky for most investors.

Also, since some of these schemes do not have a mandatory lock-in period like all other permitted investments under Section 80C, it is entirely up to an investor to stick to his investments. It remains to be seen how many investors will have the discipline and courage to continue with their investment plan in adverse market conditions, as these retirement products allow investors to exit them after paying a slightly higher exit load.

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