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Pension Funds – All that you should know about them

  • Marisha Bhatt
  • Jan 12 2022
  • 6 minutes
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Pension funds or retirement funds are one of the many investment options available to investors. These funds are in the nature of pension plans as the name suggests and provide the investor with a regular and steady source of income in their retirement. It is a good alternative to regular pension plans like PPF or other government schemes with similar objectives. 

Which are the different types of pension funds ?

Pension funds invest in essentially three categories of securities which the investors can then choose based on their preference or risk factor.

  • The first category of fund invests in debt and debt related instruments. These funds are therefore considered to be quite secure and relatively risk free. The returns on such returns are albeit low but are ideal for pensioners.
  • The next category of funds is the unit linked plans. These plans invest in equity and debt instruments equity equally and have a relatively higher risk associated with them. The returns are also higher along with higher risks.
  • Investors also have the option to invest in National Pension Schemes. These are government-backed schemes that provide many benefits like tax savings along with steady returns. The scheme allows the investors to withdraw up to 60% of the total fund at the time of retirement. The amount received at the time of maturity is tax free.

Who should invest in pension funds

Like any other pension plan, the target investors for pension funds are the retirees or investors that are looking to secure their retirement and have a corpus fund that can provide them with the benefit of sufficient returns. 

The pension funds are less riskier than regular mutual funds and are less volatile thus they are a good investment opportunity for senior citizens. 

Mode of investment

Like any other mutual fund, pension funds also have the option of choosing a mode of investment. These funds can be invested either through a lump sum investment or through SIPs.

  • While investing through SIPs, investors can choose a periodic interval like monthly or quarterly investments. These SIPs can continue till the time the investor reaches the target investment or objective.
  • Lump sum investment mode can be made by individuals having a substantial reserve or resource with them and can invest it in a single investment. It is usually preferred by cash-rich individuals that have a high-risk appetite.

Benefits of investing in a Pension Fund

The benefits of pension funds are multifold. Some of the benefits of pension funds are detailed below.

  • Fixed and guaranteed monthly income

Like most pension plans, pension funds are also equipped with the facility to provide a fixed and guaranteed monthly income. This amount can be paid to the investor till the time of their death or a fixed period of time as opted by them. 

  • Low risk funds

Pension funds are categorized under the least risk funds. These funds invest in government securities or in debt or equity instruments that have the least risk associated with them. This provides the ideal investment opportunities for senior citizens.

  • Insurance linked plans

Many pension schemes or pension policies provide the investors with an added protection in the form of insurance. This insurance protects the insurers against any unforeseen circumstances or financial loss. Investors can also withdraw an amount for any medical emergencies. 

  • Buffer against inflation 

Majority pension funds provide returns that are protected against inflation. These plans provide the benefit of one third of their accumulated fund and the balance is used as a monthly annuity for the investor.

  • Flexible investment options

Pension funds have the option of investing in lump sum mode or through SIPs. This makes it convenient for the investors to make quality investments.

Tax implications on pension funds

Taxation exemption is one of the prime benefits of pension funds. The investors can get a tax exemption on the contributions made to a pension plan up to a maximum of Rs. 1,50,000 under section 80CCC of the Income Tax Act, 1961. This deduction can be availed by any resident or non-resident (except HUF). The investors are, however, taxed on the withdrawals made by them from the fund. 

If the investor avails disbursal of total tax retirement funds, such proceeds are fully tax exempted for Government employees. In the case of non-government employees, such exemption is partially available depending on the inclusion of gratuity. If gratuity is included with the pension, the exemption permissible is up to one-third of the total amount, otherwise, it is up to 50% of the total amount. 

Top pension funds in India

Here are some of the top retirement benefit funds in India that you can consider investing in

SBI Retirement Benefit Fund

This fund was launched in the year 2021 by the fund house of SBI Mutual Funds. Some of the details of the fund are mentioned below.

ParticularsDetails
Fund managerMr. Dinesh Ahuja
Launch date10th February 2021
Minimum investmentRs. 5,000
Expense ratio
RiskVery High

The returns provided by the fund as on 7th May 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns2.41%4.53%

HDFC Retirement Savings Fund Equity Plan

This fund was launched in the year 2016 by the fund house of HDFC Mutual Funds. Some of the details of the fund are mentioned below.

ParticularsDetails
Fund managerMr. Arjun Khanna
Launch date25th February 2016
Minimum investmentRs. 5,000
Expense ratio2.37%
RiskVery High

The returns provided by the fund as on 7th May 2021 are tabled below

Period6 month1 yr3 yrs5 yrsSince launch
Returns30.69%70.37%10.38%15.63%17.59%

ICICI Prudential Retirement Fund

This fund was launched in the year 2019 by the fund house of ICICI Prudential Mutual Funds. Some of the details of the fund are mentioned below.

ParticularsDetails
Fund managerMr. Anuj Tagra
Launch date27th February 2019
Minimum investmentRs. 5,000
Expense ratio2.15%
RiskVery High

The returns provided by the fund as on 7th May 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns1.55%8.10%9.19%

Aditya Birla Sun Life Retirement Fund

This fund was launched in the year 2019 by the fund house of Aditya Birla Sun Life Mutual Funds. Some of the details of the fund are mentioned below.

ParticularsDetails
Fund managerMr. Ajay Garg
Launch date11th March 2019
Minimum investmentRs. 1,000
Expense ratio2.69%
RiskVery High

The returns provided by the fund as on 7th May 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns15.99%39.07%9.23%

Conclusion 

Pension funds are also known as retirement funds. These funds can provide the investors with an alternative mode of investment. Investors can reap the benefits of steady returns that are possibly higher than regular pension plans or retirement schemes.

FAQs on Pension funds

1. Are pension funds like mutual funds?
Pension funds are like mutual funds as they also invest in underlying securities that may be government securities or equity or bonds or a combination of these investments. 

2. Is it advisable to have multiple pension funds in a portfolio?
An investor’s portfolio should have multiple funds that can achieve diversification. This can be achieved by adding equity funds, debt funds, as well as one or two funds that are in the nature of index funds or ETFs as well as pension funds.

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