Now, mutual fund houses being what they are, they obviously can’t float a pure pension product. What they would be doing, it seems, is that they would launch retirement-linked mutual funds, which will possibly have a lock-in period in order to qualify for the income-tax benefit.
The finance minister in this year’s Union Budget made investment in pension products eligible for tax rebate. However, it will be within the Rs 1.5 lakh limit eligible for deduction under Section 80C of the Income-Tax Act.
Earlier besides pure pension fund managers like the PFRDA and NPS, only pension products offered by the insurance companies used to enjoy such income-tax benefits.
As we know today, at least three mutual fund houses – Franklin Templeton Pension Fund, Reliance Retirement Fund and UTI Retirement Benefit Pension Fund. – have already started offering such products while several others like Canara Robeco MF,
LIC Nomura MF and IDBI MF are also lining up similar schemes.
Mutual funds by nature pool in investors savings and invest in various asset classes like equity, equity-related instruments, bonds, debt money market instruments and even gold to grow wealth and generate returns for investors.
A retirement-linked pension plan would be slightly different in the sense it would have a lock-in period. That lock-in period could be either fixed or of your choice, depending on product to product. Once you have saved till your retirement and grown that corpus, it would be transferred into an annuity scheme on maturity from which you will start getting your pension. Because fund houses as such don’t have any annuity product and neither do they have the wherewithal to manage pensions. That could be a drawback.
While the contours of such products are still evolving, India’s pension market now does offer several choices that an investor can utilize to save for their post-retirement life. Some studies show Indians are not very prudent when it comes to saving for retirement and pension. But with the arrival of the NPS, various pension plans from the insurance companies and now from the mutual fund mart, one has multiple choices and one should look at this issue seriously if he or she has not done it already.