Retirement mutual funds offer just the solution for investors with needs to plan their retirement. It enables investors to systematically plan their retirement, taking care of their needs and their lifestyle after they have stopped earning.

At this point in time, there are a lot of options available to the common investors when it comes to planning their investment for retirement. Mutual funds are for retirement is one of them. Even in that, there are a lot of options in the form of retirement products that confuse a common investor.

Read: How To Plan Your Retirement with Mutual Funds

Some of the old options for planning and investing towards ones retirement like Pension Funds have been in the market and easily available for decades.

Mutual Fund Pension Plan

Introduction

Mutual funds Pension Plans have come up as a good investment option for retirement planning.

Various mutual fund houses have started offering pension plans which are hybrid in nature. Meaning, these pension plans have their investments in both debt and equity.

How these pension plans works is by way of collecting money from several investors and investing the pooled money in equity and debt markets. The equity exposure in these plans can vary in the range of 40%. This equity exposure is lower as compared to balanced funds (65% to 70%).

Few important things to note here is that withdrawal of funds is discouraged before the investor retires. For this purpose, the standard retirement age is taken as 58 years/ 60 years as on the case.

Post-retirement, an investor, upon his discretion, can exercise either of the following options. He or she could make a lump sum withdrawal. Or opt for regular income (annuity payments). In any of the above cases, the balance units post withdrawals shall continue to remain invested and continue to grow.

An investment in the pension plans of a mutual fund makes one a disciplined investor.  Such an investment has a great capital appreciation potential over the long-term.

The 40% exposure in equities which the investment corpus has, can prove to be a big wealth creator, providing a fillip to one’s retirement plans.

However, before investing an investor should be aware of all facets related to the investment. On the negative side, these pension plans charge a heavy exit load in the case of pre-withdrawal. Moreover, the taxation of returns could make an investment in the pension schemes of mutual funds slightly unattractive.

However, the negative aspects can surely be beaten by a huge margin by the equity investment returns in the long run.

Retirement Fund Details

Retirement Fund Lock-in

These retirement mutual funds come with a lock-in period of 5 years. This is definitely higher as compared to a lock-in period of 3 years for an Equity-Linked Savings Scheme (ELSS).

This higher lock-in period of 5 years may be a boon for the investors. The long-term aspect of these investments gives investors the benefit of the power of compounding. Moreover, it also helps investors help overcome the market volatility and fluctuations arising in the short-term.

It inculcates a systematic and disciplined investing habit within the investor. All this culminates into wealth creation and meeting of the goals of an investor for his/ her retirement.

However, before investing in this instrument one should be aware that the liquidity of this instrument is poor. With high pre-withdrawal charges in the form of an exit load of 1% on early withdrawal, investors should be careful about this investment.

Interestingly, one of the main advantages of the retirement products of a mutual fund is that one doesn’t have to buy an annuity. This is unlike the case with the NPS or pension plans from a plethora of insurance companies in the market.

Instead, the investor has an option to opt for a systematic withdrawal plan to meet the regular cash flow needs. On the tax saving front, since a part of the withdrawal is the investor’s principal, it turns out to be more tax-efficient as well.

Mutual Funds in this Category

Franklin India Pension Plan

This 5-year old fund has been one of the better performing retirement mutual funds. It’s 3-year as well as 5-year returns have beaten the benchmark index, which is a positive sign. The fund allows an SIP of as low as ₹500. This enables even small investors to invest in this scheme as a part of their retirement planning process.

The fund has a risk rating of moderately low. It has a slightly higher expense ratio amounting to 1.7%. In line with the above stats, the fund has been given a 3-star rating by Groww.

UTI Retirement Benefit Pension Fund

This fund is also 5 years old and has a fund size of a modest ₹2,600 crore. It has been one of the better performing retirement mutual funds. Its 1-year, as well as 3-year returns, being 8.58%, 9.98% have beaten the benchmark returns amounting to 8.33% and 7.81% respectively.

This consistent performance makes it a good investment option for retirement planning purposes.

The fund allows an SIP of as low as ₹500. This enables even small investors to invest in this scheme as a part of their retirement planning process.

The fund has a risk rating of moderately high. It has a slightly higher expense ratio amounting to 1.7%.

Tata Retirement Savings Fund – Conservative Plan

TATA Retirement Savings Fund has a fund size of ₹129 crore only. It has been rated 4-star by Groww.

The fund does not support SIP as of now. The fund has a risk rating of moderately low. It has a comparatively lower expense ratio amounting to 1.28%.

UTI Charitable and Religious Trusts

 This 5-year old fund has been one of the best performing retirement mutual funds. Rated 4-star by Groww, its 3-year as well as 5-year returns have beaten the benchmark index. This consistent performance makes it a good investment option for retirement planning purposes.

The fund allows an SIP of as low as ₹500. This enables even small investors to invest in this scheme as a part of their retirement planning process.

The fund has a risk rating of moderately low. It has a slightly higher expense ratio amounting to 1.76%.

Also check out: 30 best funds to invest in 2018.

Conclusion

Retirement products offered by mutual fund houses are a good way to plan one’s retirement. They have a lock-in of 5 years. This is not too high as compared to a lock-in of 15 years in an NPS.

These offer decent returns and enable the creation of a retirement fund.

All in all, it is a good investment option to fulfill one of the most important life-stage plans i.e retirement.

Happy investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.