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Although mutual funds are often suggested as being well-suited for long-term goals such as retirement, there are just a handful of schemes dedicated specifically for the purpose.
Apart from Franklin India Pension and UTI Retirement Benefit Pension — both notified funds enjoying deduction under Section 80C — Tata, Reliance and more recently HDFC have rolled out retirement mutual funds. Tata’s Retirement funds (with three options) have a track record of more than five years and have delivered returns in excess of standard benchmarks and peers.
Multiple plans
ICICI Pru has launched an NFO (open till 21 February) focussed on retirement savings for investors. It offers four plans — pure equity, pure debt, hybrid aggressive and hybrid conservative.
The pure equity plan will invest in equity (80-100 per cent), while the pure debt option will invest only in debt and money market instruments. The hybrid aggressive (65:35 equity-debt) and hybrid conservative (70:30 debt-equity) plans will be equivalent to investing in balanced funds. You can switch plans as and when you want. All the schemes will have a five-year lock-in period.
Depending on the plan you choose, capital gains tax will be applicable at the time of redemption. The pure equity plan has the Nifty 500 as its benchmark, indicating that the portfolio is likely to have a multi-cap focus, which is desirable given the lock-in period.
In general, investing in mutual funds with an asset-allocation pattern that is consistent with the age, risk appetite and timelines for goals of the investor is recommended. If your timelines are long (7-10 years or more), diversified equity funds can help you accumulate a healthy corpus because over such an extended horizon, volatility tends to be minimal and the chances for delivering inflation- and benchmark-beating returns brighten.
Current options
As indicated earlier, retirement funds have a limited record. Tata Retirement has been the best of the lot in the last five years. The progressive and moderate plans of the scheme, both of which have an equity bias, have delivered more than 18 per cent over the past five years.
Even over the last three years, returns have been healthy and, in general, better that what equity funds of various categories have managed, and higher than the Nifty 500 and BSE Sensex. UTI Retirement and Franklin Pension have delivered 10-11 per cent in the past five years, which is lower than what the standard benchmarks delivered.
These two funds have a long track record, but returns have been moderate.
If you already have a portfolio dedicated to retirement, with a blend of diversified funds across market capitalisations, you can stick to it for your goal. You can consider the NFO if you have exhausted the above option, have a surplus to be deployed and wish to diversify to a new fund management company to benefit from a different style.
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