Tata Retirement Savings Fund - Conservative Plan: Well-tailored to suit retirees

With the stock market ruling high, your asset allocation between equity and debt may need a re-think, especially if you are nearing retirement. This is because, while equities are considered wealth creators, they generate healthy returns only over a long term. As you approach retirement, allocating more towards debt can help protect your capital.

The good old post office schemes offer capital protection, with relatively better returns than bank fixed deposits. A few mutual funds too offer retirement plans tailored to the needs of investors, based on their risk profile. While these schemes, unlike bank and post office deposits, can suffer capital loss (NAV of a debt fund can rise or fall with the underlying bond prices), the risk is lower than in equity funds. Also, the marginal allocation into equity in these funds can provide a leg-up to returns.

Tata Mutual Fund offers three choices of asset allocation plans to investors for retirement planning -- Tata Retirement Savings Fund — Progressive Plan, Moderate Plan and Conservative Plan.

Tata Retirement Savings Fund - Conservative Plan is structured to suit retirees with medium-risk profile. The objective of the plan is to provide capital protection by investing at least 70 per cent of the net assets in debt and up to 30 per cent in equities.

Investors looking to shift their retirement corpus from risky assets can consider the Conservative Plan (given its marginal allocation to equity). An exit load of 3 per cent is charged if redeemed before the age of 60. No exit load is charged after the age of 60.

Falling within the hybrid - debt-oriented aggressive category (allocating 20-30 per cent into equities), Tata Retirement Savings Fund - Conservative Plan outperformed the category across all time-frames. The scheme has delivered 14, 12 and 12 per cent annualised returns during one, three and five years, respectively, while the category posted 12, 11 and 11 per cent returns.

The fund has maintained an equity-debt mix of 29:71 (on average over last three years). On the equity side, it favours a growth-oriented strategy, following a bottom-up approach while cherry picking stocks. About 28 per cent of the corpus is invested in equities, of which one third is in mid-cap stocks. This has helped the fund deliver relatively higher returns during the recent rallies.

On the fixed income portfolio, the fund has played the accrual theme. Since August 2015, possibly because of the sharp fall in G-Sec yields, the fund has begun to take active calls on duration. The debt portion is now skewed towards G-Secs and high-rated corporate bonds (only AAA PSU bonds). The fund takes medium duration calls (five to eight years over last two years). The portfolio’s average maturity is 4.6 years and yield-to-maturity is 6.9 per cent (as of June 2017).

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