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Best Retirement Funds in India

Talk about retirement planning and most people think of pension plans, Public Provident Fund (PPF) accounts, insurance, fixed deposits, and so on. These options are typically not easy to access in an emergency. Today, advisors suggest that people should also look at mutual funds when planning for their retirement.

What is a retirement mutual fund?

A retirement mutual fund is also called a pension fund, where you can save a part of your income in a mutual fund for your retirement. The returns on these funds can be given as a lump sum amount or as a monthly annuity. In this way, retirement mutual funds in India offer a steady stream of income for investors upon their retirement. 

What are the different retirement fund categories?

When looking for the best mutual fund for retirement planning, you will find there are three broad categories of pension funds:

  • Debt mutual funds: These are arguably the most popular type of pension funds as they are low-risk, offer steady returns and are very safe. Debt funds invest in fixed income instruments and so, are less subject to volatility.
  • Hybrid mutual funds: These mutual funds offer a mix of debt and equity fund investment. These funds are created to meet the investment objective of the fund scheme. The fund manager allocates the corpus of the fund in varying proportions into debt and equity assets. The fund manager may also actively change the proportion of debt and equity investment according to market movements.
  • Equity mutual funds: Traditionally, investors stay away from equity funds as they grow older due to their inherent risk. But there is no need to stay completely away from them. Equity funds prove advantageous when held for the long-term and can beat inflation while providing superior returns. If the bulk of your investment portfolio is allocated to traditionally safe instruments, you can invest in an equity fund as well.


What are the features and benefits of the best retirement funds?

The best fund for pension will offer the following features and benefits:

  • Transparency: Mutual funds have great transparency because of rules mandated by the Securities and Exchange Board of India (SEBI). One such mandate is the riskometer that has to be used by every scheme to indicate the level of risk. If a fund has a change in risk, it has to inform all its investors so that they can make informed decisions regarding their investment. Moreover, all details directly or indirectly pertaining to the fund are accessible to the investor, from the fund manager details to the fund house’s solvency particulars and detail.
  • Flexibility: Mutual funds are far more flexible than traditional pension plans. Investors can withdraw their investment either wholly or partially at any time. They are free to redeem their money and invest in some other mutual fund at any time.
  • Tax-efficiency: Contribution to retirement mutual funds is tax-exempt up to Rs 1.5 lakh under Section 80CCC of the Income Tax Act. In the case of equity funds, long-term capital gains up to Rs 1 lakh are tax-exempt. For debt mutual funds, tax is levied after indexation, which often reduces the tax to zero.
  • Beat inflation: Perhaps more than any other traditional pension instruments, mutual funds are best equipped to beat inflation. It is no secret that inflation eats away at the value of your money. Thousand rupees today will not have the same buying value five or ten years from now. Mutual funds that are held for at least five to seven years can beat inflation and deliver high returns; this is especially the case for equity mutual funds.
  • Lower in risk: Retirement mutual funds often carry lower risk profiles as they are often made up of fixed income and government-backed securities. Investors who are not risk-averse can invest in equity or hybrid funds to earn better returns.
  • Insurance cover: Many retirement mutual funds offer investors insurance coverage that protects their dependents from financial loss in case the fundholder passes away before retirement. Moreover, some of these mutual funds may allow fundholders to withdraw a lump sum amount in case of a medical emergency.


How to invest in a retirement mutual fund?

There are two ways to invest in a retirement mutual, you can choose to make a lump sum investment or via a Systematic Investment Plan (SIP) option. With the SIP option, you pay a fixed amount on a monthly, quarterly, or annual basis.


Summing up

When looking for the best mutual funds for retirement, focus on asset allocation. Are you comfortable with equity or debt? Do you want a safe investment or do you want to build a corpus for retirement? Choose a fund that matches your risk appetite and investment goal. The best fund for pension should meet your expectations and goals for retirement planning.

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