HDFC Retirement Saving Mutual Fund NFO – Should you invest?
Yesterday, HDFC Retirement Savings Fund NFO opened for subscription. This mutual fund scheme objective is to invest in equity and debt related instruments and create wealth for your retirement. This post is based on request from Pooja on “Suggest on topic”. What are the features of HDFC Retirement Savings Fund Scheme? Should you invest in HDFC Retirement Savings Mutual fund NFO?
Features of HDFC Retirement Saving Mutual Fund NFO
- This is open ended scheme.
- Scheme opened for subscription on 2-Feb-2016
- Scheme closes for subscription on 19-Feb-2016. It would reopen for further subscription after 5 working days after closure of the date.
- HDFC Retirement Saving Mutual Fund is available in three options i.e. Equity plan, Hybrid Equity Plan and Hybrid Debt plan.
- Tax benefits available u/s 80C upto Rs 1.5 Lakhs of investment in this scheme.
- This scheme has lock-in period of 5 years. Means you cannot redeem / sell the mutual fund units before 5 years.
- Switch among schemes available without any restrictions or limitations after lock-in period of 5 years.
- An exit load of 1% applicable if MF units are redeemed/sold before 60 years of age.
- This scheme is available for lump sum and SIP options.
How does this HDFC Retirement Saving Mutual Fund NFO compares with existing pension plan schemes?
Last year, Reliance Retirement Mutual Fund scheme was launched. Beyond that, there are schemes like UTI Retirement Benefit Fund Scheme and Franklin India Pension Plan Fund Scheme which is in this retirement/pension plan, fund segment, hence a quick comparison is given for ready reference
UTI Retirement Fund and Franklin India pension plan scheme invests up to 40% in equity and balance in fixed investment options. Hence, they are debt oriented schemes. Reliance Retirement Fund which got launched in this segment last year invests 60% to 95% in equity options (wealth creation equity plan). Under the income generation scheme, it invests 70% to 95% in debt.
On the other hand, in HDFC Retirement Saving Mutual Fund, it has 3 options, equity plan which invests 80%-100% in equity, hybrid equity plan which invests 60% to 80% in equity and balance in debt and Hybrid debt plan which invests 70% to 95% in debt and balance in equity. Comparing to other plans, HDFC Retirement Savings Fund has various options where one can choose.
UTI Retirement fund and Franklin India pension plan funds gave 10% to 13% annualized returns over last 5 years. Reliance Retirement Fund launched in last year and it generated negative 7% of returns in 1 year. Since HDFC Retirement Savings Fund is being launched now, we need to wait and watch for the performance of such fund.
Tax benefits u/s 80C
Currently tax benefits upto Rs 1.5 Lakhs of investment u/s 80C is available for the HDFC Retirement Saving Mutual Fund too. These benefits were available for Reliance Retirement fund which came last year. No investment tax benefits available for other funds in this segment.
Also Read: 10 Best Debt Mutual Funds to invest in 2016
Should you invest in HDFC Retirement Saving Mutual Fund NFO?
- Experts believe that one can invest in this fund till 60 years as it has 3 options (Equity, Hybrid Equity and Hybrid Debt). Returns from equity funds are tax free after 1 year and returns from debt oriented funds on the other hand are taxable at 20% with indexation. However, such tax would be low as one would invest for over 10 years.
- Reliance Retirement Fund launched last year gave 6.89 negative returns. If you have invested Rs 1,000 per month for last 12 months, your investment value would be Rs 12,000 and current market value of such funds are Rs 11,152. Since inception this fund gave minus 7% returns while similar period BSE S&P 100 gave a negative return of around 5%. In line with these returns, you can expect that such retirement funds may underperform markets as they look more from safety point of view though invest in equity.
- If you are looking for tax saving funds, you can invest in top ELSS funds as they have already providing 12% to 15% returns along with 80C benefits. Since you are investing for long term, instead of investing in such packaged retirement schemes, you can invest in well diversified mutual funds for the long term. There are several best equity mutual funds which have provided over 12% returns and have proven performance. When you are nearing your retirement, you can think of shifting to debt schemes.
- In case you do not believe in equity, you can accumulate funds through EPF / PPF / VFP where you can get 8.5% to 8.75% annualized returns.
- I would advise investors to stay away from these retirement mutual funds.
Brochure of HDFC Retirement Savings Mutual Fund can be downloaded here.
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HDFC Retirement Saving Mutual Fund NFO Review
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