The concept of retirement planning gains prominence with longer life expectancies and changing socio-economic dynamics. Consequently, the need for robust retirement solutions becomes increasingly apparent. In addition to retirement investment options such as the National Pension Scheme and Public Provident Fund, mutual funds, with their potential for long-term wealth creation, have been offering retirement funds. The latest entrant is the PGIM India Retirement Fund, an open-ended retirement solution-oriented scheme launched by PGIM India Mutual Fund. The New Fund Offer is open till April 9 with the minimum investment required at ₹5,000. In solution-oriented schemes targeting retirement, there are 28 existing schemes across 12 fund houses overseeing a corpus of around ₹25,424 crore, as of February. These schemes broadly fall into equity, debt and hybrid baskets. Let us look at what PGIM India Retirement Fund has to offer.

Investment strategy

The fund primarily invests in stocks (equity and equity-related instruments), with asset allocation of 75-100 per cent. It allocates these investments across large-cap, mid-cap and small-cap companies, ensuring each segment represents at least 25 per cent under normal conditions. Additionally, the scheme may utilise equity derivatives up to 25 per cent of net assets. Consequently, the fund operates as an equity-oriented scheme akin to a multi-cap fund.

Benchmarked against the S&P BSE 500 index (TRI), the fund will be managed by Vinay Paharia and Puneet Pal. According to the fund managers, they will prioritise companies with robust fundamentals, including sustainable business models and effective management. Their strategy combines top-down and bottom-up approaches for company selection. It should be noted that Paharia previously managed the Union Retirement Fund, launched in September 2022.

Finally, investors should be aware of the fund’s lock-in period of five years or until the age of 60, whichever occurs earlier.

Other options

Retirement funds have traditionally been oriented towards hybrid schemes, with offerings such as the UTI Retirement Fund and Franklin India Pension Plan. However, over the past decade, various fund houses, including Tata, Nippon India, HDFC, ICICI Prudential, Aditya Birla, Axis and SBI, have introduced multiple variants of retirement schemes tailored to different investment approaches. For instance, Tata introduced three variants – Progressive (equity-oriented), Moderate (aggressive hybrid-oriented), and Conservative (debt-oriented).

Some fund houses provide automatic switching options between these schemes based on the investor’s age. For example, Nippon India Mutual Fund offers an auto transfer facility from their wealth creation plan (equity-oriented) to income generation plan (debt-oriented) upon the investor reaching 50 years of age.

Retirement funds typically entail a lock-in period, prohibiting early redemption until the investor either reaches retirement age or completes five years, whichever comes first. Tata Mutual Fund schemes, however, allow early withdrawals with an exit load of 1 per cent, while Franklin imposes a 3 per cent exit load for investors under the age of 58.

It is noteworthy that Axis and SBI offer insurance coverage options for monthly Systematic Investment Plans (SIPs) with a minimum tenure of three years. Axis’s iPlus SIP feature provides insurance cover (commencing after 12 instalments) on the remaining SIP instalments, while SBI’s SIP Insure feature offers a term insurance cover plan of up to ₹50 lakh per investor. However, the insurance benefits will cease in the event of default on monthly SIP payments. Finally, retirement funds typically follow either the BSE 500 or NSE 500 as their benchmarks, representing a broad market-cap coverage of more than 90 per cent of listed stocks.

Our take

A retirement fund is just one of the means of saving for your silver years. Traditionally, individuals can allocate their savings into a mix of diversified equity, debt and hybrid funds, aimed at generating steady returns over time. However, the idea of a dedicated retirement-focused fund doesn’t necessarily offer any distinctive advantages. In fact, it often imposes restrictions on liquidity, enforcing a five-year lock-in period that inhibits the flexibility to exit underperforming funds. Moreover, unlike some other investment vehicles, there are no inherent tax benefits associated with such funds. If the PGIM Retirement Fund does develop an exceptional track record over the foreseeable future, it can be added later on.