scorecardresearchRetirement planning: All you need to know about pension funds

Retirement planning: All you need to know about pension funds

Updated: 30 Nov 2022, 04:21 PM IST

Retirement mutual funds or pension funds are an open-ended retirement savings strategy that can assist you in keeping money aside for your post-retirement period. Here are its features and advantages.

Planning for retirement is getting ready for a consistent income after retirement.

Planning for retirement is getting ready for a consistent income after retirement.

Growing older can be costly. While unnecessary spending may go down, medical expenditure is only going to go up. To ensure financial stability in your later years without depending on others, you should have a retirement investment strategy.

To begin, one should first establish their retirement objectives such as: When do they intend to retire? How much money would be required to live stress-free? 

Depending on the objectives, one should choose their investment vehicles such as a bank fixed deposit, pension plan, or retirement mutual fund.

In this article, we intend to explain the basics of retirement mutual funds.

What are retirement mutual funds?

Retirement mutual funds or pension funds are an open-ended retirement savings strategy that assists you in keeping money aside for your later years. These funds invest in a variety of stock and debt instruments in order to secure growth while exercising caution.

There is a lock-in period of five years or until retirement, whichever occurs first. A retirement mutual fund's primary objective is to offer a reliable income after retirement. With the goal of beating inflation, this mutual fund can assist you in increasing your retirement savings.

They provide a variety of solutions from which investors can select in accordance with their requirements. Some of these funds invest primarily in riskier investments, such as government security bonds and other debt instruments that have fixed interest rates, making them debt-oriented funds.

What are the advantages of retirement mutual funds?

  1. The fundamental benefit of a retirement fund is that, unlike NPS or other retirement insurance plans, a mutual fund plan does not require you to choose an annuity payment. Depending on his or her financial requirements and objectives, an investor can choose to withdraw the fund's total in either lump sum or monthly distributions.
  2. The fund offers the investor the choice of making an acceptable return on investment in government securities or a higher return on investment in a hybrid fund.
  3. The majority of retirement plans include insurance coverage to be used in case of anto shield an insurer from financial difficulties in the event that an investor passes away before retirement. This plan offers a choice to withdraw lump sum in case an investor has a medical emergency.
  4. Investors have the opportunity to take advantage of tax deductions under section 80C of the Income Tax Act of 1961 by investing in these funds. Tax on the amount may be deductible up to 1,50,000. Even so, taxes must be paid on withdrawals from these funds.
  5. Investing in these funds enables one to insure their asset against inflation. After retirement, the investor has the option to withdraw one-third of the corpus. The investor can use the remaining 2/3 as a monthly annuity.

Retirement mutual funds in India

Name of the fund5-year returns (%)
HDFC Retirement Savings Fund-Equity Plan-Reg(G)13.04
Tata Retirement Sav Fund - Prog Plan(G)8.31
UTI Retirement Benefit Pension6.76
Franklin India Pension Plan(G)6.51
Nippon India Retirement Fund-Wealth Creation(G)6.11

Note: The above data has been compiled from FundsIndia.

One of the most crucial aspects of wealth building is the return on investment. Your returns may be higher if you have exposure to a variety of asset classes and subclasses through mutual funds. Equity has historically outperformed all other asset classes in the long run, according to historical statistics, and has the ability to increase investors' wealth over a longer investment horizon.

Mutual funds provide a wide range of investment solutions to accommodate various financial needs and risk tolerances. You'll be most exposed to equity if you begin retirement savings when you're young. The riskier equities subcategories like midcap and small-cap funds are included in this, and they have the potential to produce significant returns over time.

Target maturity funds are different from fixed maturity plans.
First Published: 30 Nov 2022, 12:55 PM IST