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FSM in Media: Retirement funds in vogue: Take a note of these things before investing
April 16, 2015

Investors who are nearing their retirement years can consider debt-oriented funds.

Author : Dr. Renu Pothen


This column was published in Dalal Times on April 13, 2015.

Retirement planning today has become a hot topic of discussion among our investors. Rising income levels along with elevated standards of living are creating panic attacks among the salaried class as to whether they will be able to maintain the same life style during their golden years. Examples stating that an investment of INR 10,000 every month over the next 20 years will create a surplus of INR 1,49,72,395, assuming a rate of return of 15% per annum are already giving sleepless nights to our investors. As I write this note, this surplus amount is actually the cost of a 2 BHK for investors staying in Mumbai. In such a scenario, the question is “Does the Mutual Fund Industry have any solution to help investors with proper retirement planning?”

Although in recent years Fund Houses have started showing an interest in launching retirement schemes, it is disappointing to see that the progress made so far in creating awareness about the existing schemes have not been upto the mark. At this juncture, when we have a Government at the centre which is very keen in India being a pensioned society instead of a pensionless society, this should be a big positive for retirement funds. My endeavour in this column is to take investors through the different schemes available in the Mutual Fund Industry for retirement planning.

UTI-Retirement Benefit Pension Fund & Franklin India Pension Plan were launched with the aim of providing periodic income to the unit holders on a regular basis. The asset allocations of both funds are such that 60% of their assets are concentrated into debt securities while 40% of the allocation is into equities. The fund from the UTI stable was launched in 1994 and has garnered a corpus of INR 1458 crore as on February 2015. On the other hand, Franklin India Pension Plan came into existence as early as 1997 but the funds surplus amount as on February 2015 stood at INR 332 crore. These are funds that have been in existence for more than 15 years and yet have not attracted the investors’ attention. 

The fact of the matter is that the fund houses have not created enough awareness about these funds and hence investors are left clueless when asked about retirement options in the mutual fund industry. I have in the past, pointed out that one of the drawbacks of these two schemes could be that they are heavily concentrated into fixed income securities, which may not be acceptable to our young investors.

Tata Retirement Savings Fund launched in 2011, came as a relief to investors as it gave them the option to choose amongst their 3 plans (Progressive Plan, Moderate Plan and Conservative Plan) depending on their age group. This fund has not been able to get into investor portfolios as it does not provide investors the tax saving benefits available under other pension plans. Finally, Reliance Mutual Fund launched the Reliance Retirement Fund this year with a lot of fan fare. The scheme looks promising as it allows young and old investors to choose between 2 plans that is Wealth Creation Scheme and Income Generation Scheme. Although the fund looks attractive, we will have to allow more time to see how this fund delivers performance to investors.

If an investor had invested INR 10,000 each in 4 funds, namely, UTI-Retirement Benefit Pension Plan, Franklin India Pension Plan, Reliance Growth Fund and Birla Sun Life Frontline Equity Fund  during the period, April 1, 2005 to March 1, 2015,  the returns would be as depicted in the table below:


CAGR (%)

UTI-Retirement Benefit Pension Plan


Franklin India Pension Plan


Reliance Growth Fund


Birla Sun Life Frontline Equity Fund


This table is a clear indication that it would be advisable for young investors to plan for their retirement by concentrating on funds biased towards equities. On the other hand, investors who are nearing their retirement years can consider debt-oriented funds. Hence, it is a positive development to see fund houses actually launching retirement schemes based not on the risk profile of the investors, but on the basis of their age.

My Take

The enthusiasm shown by fund houses in launching pension plans is a step in the right direction. However, the question that investors need to ask these fund houses should be: “Are fund houses making an effort to create awareness about these schemes among investors and will the fund managers give due priority to these funds when it comes to beating their benchmarks?” If the answer is negative, then investors need to create a mutual funds portfolio which will cater to their retirement goal.

I have always been of the opinion that investors should create a mutual funds portfolio for their retirement, considering the sad state of pension funds in the industry today. However, the investor psychology is such that the moment the portfolio generates superlative performance or if there is an emergency, they very conveniently forget the goal for which this portfolio was created. In this scenario, pure play pension funds would make sense and hence fund houses should seriously start creating awareness about these funds among our investors.

Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website.

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