Are Mutual Fund Retirement Schemes Apt For You?

Indian millennials are increasingly becoming cautious towards their investment needs and retirement is no longer a forgotten goal. In response to which, mutual fund houses have swiftly added retirement schemes to their offerings. These funds have further aroused investors’ interest due to their inclusion under Section 80C exemptions.  

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But, are these retirement schemes really a good bet for future retirees? Let’s uncover the features of these schemes to understand if investment in these schemes does justice to your retirement goal. 

Mandatory lock-ins and exit load

Mutual fund retirement plans come with a mandatory lock-in period of up to 3-5 years, which is similar to ELSS schemes that have a lock-in period of three years. Moreover, these schemes charge exit load anywhere between 1% and 3% for withdrawals before reaching the age of 58-60. While exit load is stipulated to discourage early withdrawals, yet it makes these schemes less attractive than regular equity schemes or even ELSS. 

Here’s a snapshot of the currently available retirement schemes and their features. 

Higher expense ratio

As evident from the above table, retirement funds carry higher expense ratio than equity schemes, mainly due to low AUM. This makes your cost of investment in these expensive than what it would have been for diversified equity schemes. 

	Exposure to Equities	Exit load	Lock-in	Expense Ratio
HDFC Regular Savings Fund	1) Equity Plan - 80%-100% 2) Hybrid Plan - 60%-80% 3) Debt Plan - 5%-30%	1% till 60 Years	5 Yrs	1.81%
UTI Retirement Benefit Pension Plan	Up to 40%	1% till 58 Years	NIL	2.11%
Franklin India Pension Fund	Up to 40%	1% till 58 Years	3 Yrs	2.49%
Reliance Retirement Fund	1) Wealth Plan - 65%-100% 2) Income Generation Plan - 0%-35%	1% till 60 Years	5 Yrs	2.30%

Returns

Performance of these schemes has been at par with diversified equity funds so far. Also, exposure to equities in these schemes needs to be factored in while comparing returns among them. For example, HDFC and Reliance allow equity exposure up to 100% while UTIl and Franklin have capped it up to 40%. 

	1 Year	3 Year	5 Year	10 Year
HDFC Regular Savings Fund	35.62%	-	-	-
UTI Retirement Benefit Pension Plan	16.72%	10.21%	12.24%	9.11%
Franklin India Pension Fund	11.01%	9.61%	13.09%	8.73%
Reliance Retirement Fund	39.69%	-	-	-

Final take

Clearly, mutual fund retirement schemes have an upper hand over traditional retirement options such as National Pension Scheme (NPS) or insurance pension plans in terms of liquidity and exposure to equities. 

However, given the high rate of expense ratio and extended lock-in, diversified equity schemes are relatively better options to rely on. At the same time, retirement need differs from individual to individual that calls for a more customised plan than a generalised one.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.