Can pension schemes from MF houses be a good option for retirement planning? If you are not a very disciplined and a savvy investor, now you may all of a sudden realise that, you are yet to invest for the purpose of saving tax this Financial Year (FY). January-March is the busiest quarter for those in the business of distribution of financial products. This year, there is a possibility that, your broker might try pushing a ‘unique’ product labelled as an equity oriented pension plan to you. Since we all care about our post-retirement life; it may so happen that, you invest in any such scheme without gathering adequate information about it. We endeavours to help you make well informed choices by sharing its view on equity oriented pension plans. What are equity oriented pension plans? Recently, a few mutual fund houses have filed documents with Securities and Exchange Board of India (SEBI) for launching equity oriented pensions plans. Reliance Mutual Fund has already got the approval from the tax authorities offering tax benefits to the investors of the scheme. DSP BalckRock Mutual Fund and Axis Mutual Fund have also filed documents seeking approval. Equity linked pension plans has been a relatively new concept in India. So far, UTI Mutual Fund and Franklin Templeton Mutual Fund have retirement focused products but both are debt oriented ones. In general, equity oriented pension plans would have a mandatory lock in period of say 3 to 5 years. The plan may continue until you don’t turn 60. There would be typically several sub-plans available with each varying in the maximum permissible exposure to equity, so that investors with different risk profiles can invest in the suitable plan. At the maturity, the accumulated funds may be used to buy annuity for which a fund house may tie up with insurance companies. To attract investors, fund houses may even consider offering value added benefits such as term insurance cover among others. We are of the view that, equity oriented pension plans offered by mutual funds is nothing but old wine in the new bottle. To ride the current boom in the Indian equities, mutual funds are trying to garner higher corpus preferably for the longer term. We believes there is no harm in investing in such products. It is just that these products are new and have no track record to depend on. They have a lock in period and have a relatively strict exit policy. So for any reason, if your pension plan fails to perform, you would find it difficult to exit. We are of the view that, to take care of your post retirement needs you should follow personalised asset allocation pattern and invest accordingly. As far as equity component of your asset allocation is concerned, you would be better off if you invest in diversified equity mutual funds having dependable track record of consistent performance. You should closely monitor performance of your mutual funds and rebalance your portfolio wisely.
Posted on: Wed, 21 Jan 2015 05:00:24 +0000
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