New Mutual Fund linked Retirement Plans/ Pension Plans

New Mutual fund Retirement Plans, New Mutual fund Pension Plans, Mutual fundsNew Mutual Fund linked Retirement Plans/ Pension Plans

Last week, SEBI has proposed new mutual fund linked pension plans / retirement plans which are similar to 401K pension plans in the US. SEBI expects that such business would be more than Rs 18,000 Crores in India. In this article, I would provide more insights about this new MF linked retirement plans/pension plans and how they would benefit investors.

What are 401K plans in the US?

401K plans are famous in the US which act as additional retirement savings for US citizens beyond pension plans provided by employers. Currently they provide tax benefits and good returns to investors.

Also Read: Complete guide on New Pension Scheme (NPS)

What are new mutual fund linked retirement plans proposed by SEBI?

Similar to 401K plan in the US, SEBI proposes to Govt. of India to provide tax exemptions to these new mutual funds linked retirement plans in India.

Features of new mutual fund linked retirement plans / pension plans

  • Any investor between the age group of 18-55 years of age can buy such mutual fund retirement plans to enjoy the benefits of such plan.
  • Minimum lock in period would be 5 years
  • SEBI proposes to categorize them as “EEE” category benefits where an investor would get tax exemption during investment and the tax exemption for accrued income during withdrawal stage.
  • Age linked investment model which would automatically reduce exposure to equity when investor grows older to reduce risks
  • 100% withdrawal at 60 years of age
  • Withdrawal of contributions after the minimum lock in period completed for such contribution subject to exit load
  • Full withdrawal during exigency such as death of investor, permanent disability or terminal illness without any exit load.

What are the tax benefits proposed by SEBI to Government?

As per SEBI, Government can provide tax benefits of Rs 50,000 (like it is provided for Rajiv Gandhi Equity Saving scheme subscribers) during the investment in a mutual fund linked retirement plan or

Enhance 80C exemption to Rs 2 Lakhs for such investments. Currently 80C exemption has a limit of Rs 1 Lakh.

Are there any mutual fund schemes offering such plans?

Currently Franklin Templeton and UTI are offering mutual fund pension plans where the performance is average. However, with new guidelines coming in MF linked retirement plans, more and more mutual fund houses are expected to float mutual fund schemes.

Why SEBI proposes these new MF retirement plans?

401K plan generates funds of USD 6 Trillion (INR 37 Lakh Crores) and this is only 28% of pension market. Currently there are 3.6 Crores individuals who are tax payers in India and SEBI thinks that even if we consider 10% of them that they contribute to Rs 50,000 per annum it amounts to Rs 18,000 Crore market. This could be added to the mutual fund segment in a year.

Current retirement options Vs New MF linked retirement plan

Currently there are NPS, EPF/VPF and PPF as retirement options. However, all these are safe investment options and provide anywhere between 8% to 9% returns. Last year NPS has provided 14% annualized returns due to its investment model and good stock market jump which may not repeat every year. However, the majority of subscribers to NPS are only Govt. employees. Private employees are still relying  on EPF or PPF as a retirement option. Hence MF linked retirement plan or pension plan could be a good bet for private employees. Here are some of the differences between current retirement options and this MF linked pension plan

Minimum lock in period: NPS, EPF/VPF maturity is after retirement i.e. 60 years. PPF account  has a lock-in period of 15 years. However, new MF linked retirement plan, has a lock-in period of 5 years for the contributions made. E.g. if you make  Rs 50,000 contributions in 2014 and make Rs 50,000 every year after that. During 2019, you can withdraw Rs 50,000 (contribution which completed 5 year lock-in period).

Also Read: How to invest retirement money in India – Explained with 7 ways

Rate of interest: NPS has provided 14% returns last year. However, it provided 8% approx annualized returns all along. EPF/PPF provides approx 8.5% returns. However, since MF linked retirement plans are just in the planning stage, we can expect returns which any mutual fund scheme may give which would be approx of 8% to 12% per annum. However, once an investor grows older, investment model would reduce exposure to equity (which is done in NPS) and returns could reduce between 9% to 10% only.

Tax benefit: Currently NPS/EPF/PPF all fall under section 80C upto maximum tax benefit of RS 1 Lakh. However, as per SEBI proposal, it indicates that you can get tax benefit Rs 50,000 in the year of investment or 80c benefit would be extended to Rs 2 Lakh.

Conclusion: I feel these new mutual fund retirement plans / pension plans are expected to provide good benefits, especially for private employees who are not investing in NPS. I do not recommend to invest in current mutual fund pension plans being offered by a few mutual fund houses as they provide average returns which are more or less offering returns provided by banks. However, we should wait and watch for new mutual fund schemes to get floated before we take the investment decision.

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New mutual fund linked retirement plans/ pension plans



    I am shortly retiring from Central Govt. I will be getting
    aroun d 18 Lakhs as Terminal benefits. In addiation to my pension, I may require returns regularly from this amount to
    pull on a decent likving. I have no commitments as of now. Please advise me
    the safe placed and maximum tax emmptaion invetsment plan.

  • dr.p.sudhakar

    dear mr.suresh, Thank you verymuch for all the valuable information.

    Ihave invested in lic marketplus ,yearly rs.50000 from 2007 (total seven years).when I have asked the agent the surrender value it came to rs.4,04949.(Ihave paidRs.3,50000 ie.50000×7).Is it advisable to continue upto maturity value ie upto 3more years,maturity period upto 2017 or to surrender.

    I and  myfamily members invested in lic marketplus,moneyplus schemes .Upto now we paid Rs.1400000 but surrender value comes to Rs.1600000 only.Is it advisable to continue or surrender( for moneyplus schemes the maturity time is  upto 2020) to invest in other better schemes.

    • Hello Dr. Sudhakar. All unit linked market plans offer low returns, but provide protection. If you are in the early stages of insurance, you should have surrendered them. Since you have only 3 years down the line for maturity, I feel, you should continue. Regd money plus scheme, before you discontinue, check whether you have adequate insurance. If yes, you can look for surrendering them. However you should check scheme performance in last 3 years before taking decision. It so happens that in first 3 years the scheme would have charged some money as expenses, but later your balance money might be yielding good returns. In such case a case, surrendering at this point of time may not be advisable. Best way is to get statement of account and check how the total investment is moving year on year and then take a call.

  • Vinita Solanki

    I am a regular follower of your blog. It really contains very good investment ideas. In this case, I have a question, what is the main difference between maturity vs pension plan

    • Vinitha, Maturity plans gives insurance maturity value. Pension plans on other side does not provide maturity benefits, but you would get regular income after retirement. 

  • Vikas Thorave

    Hello Suresh Sir,
    Please suggest me some top performing mutual funds in pharma sector.
    Thanks in advance.

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