Retirement mutual fund is an open-ended retirement solution-oriented scheme with an aim to ensure steady income after retirement. These funds are suitable for investors who want to save up for post-retirement years.
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|Nippon India Retirement Fund Wealth Creation Scheme (G)|
|ICICI Prudential Retirement Fund Pure Debt Plan (G)|
|Franklin India Pension Plan (G)|
|Nippon India Retirement Fund Income Generation Scheme (G)|
|Tata Retirement Savings Moderate Fund (G)|
|ICICI Prudential Retirement Fund Pure Equity Plan (G)|
|Aditya Birla Sun Life Retirement Fund The 50s Pln (G)|
|Aditya Birla Sun Life Retirement Fund The 30s Pln (G)|
|Aditya Birla Sun Life Retirement Fund The 50s Plus Debt Pln (G)|
|ICICI Prudential Retirement Fund Hybrid Conservative Plan (G)|
|Tata Retirement Savings Conservative Fund (G)|
|Tata Retirement Savings Progressive Fund (G)|
|Aditya Birla Sun Life Retirement Fund The 40s Pln (G)|
|ICICI Prudential Retirement Fund Hybrid Aggressive Plan (G)|
A retirement mutual fund is an open-ended retirement solution-oriented scheme that helps save up for retirement. These funds majorly invest in low-risk investments like government securities to ensure a steady income. However, they also invest in equity and debt securities to ensure the investment grows. Retirement mutual funds usually have a lock-in period of 5 years or until retirement, whichever is earlier.
The main purpose of a retirement fund is to ensure steady income after retirement. Moreover, a retirement mutual fund can help accumulate a retirement corpus taking into consideration the growing inflation. Investors can invest in these funds through lumpsum mode or SIP. SIP is the most preferred mode of investing as it helps accumulate wealth by investing in smaller amounts regularly.
Investors can withdraw their investment in a lump sum or opt for a Systematic Withdrawal Plan (SWP) to ensure regular income and liquidity post-retirement.
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|Fund Name||Returns Since Inception||Expense Ratio|
|SBI Retirement Benefit Fund||20.7%||2.22%|
|HDFC Retirement Savings Fund||18.4%||2.27%|
|UTI Retirement Benefit Pension Fund||10.1%||1.74%|
|TATA Retirement Savings Fund||14%||2.21%|
|Axis Retirement Savings Fund||8.5%||2.23%|
Retirement funds are suitable for investors who want to save up for their sunset years (post-retirement). Investors in their early 20s can also invest in these funds, and hence there is no bar on the minimum age requirement for investing in them. Moreover, retirement funds invest in low-risk investments and best suit investors with a low to a medium understanding of risk. Finally, investors who do not have the time and knowledge to make their DIY equity portfolio for their retirement can also invest in these funds.
Following are the things to consider before investing in retirement mutual funds:
Associating investments to financial goals like retirement planning, will not only keep the investors disciplined but also motivated. Also, it is important that investors align their goals with the mutual fund’s investment objective. Hence, one should carefully pick the funds that best suit their investment needs.
Long term investments are best suited for retirement planning. Therefore, one should consider investing in mutual funds for at least a period of five years. For a long duration, equity mutual funds have given significant returns in the past. However, as equity mutual funds are highly volatile, one must not worry about short term fluctuations. One should have longer investment tenure to be able to earn significant returns.
Unlike most traditional retirement schemes, mutual funds do not guarantee returns. However, longer investment durations will help investors in generating significant returns. Historically, equity mutual funds have generated higher returns in comparison to traditional investment schemes. Therefore, one should be patient and should not worry about short term market movements.
Mutual funds invest across debt and equity instruments. Depending on the equity and debt exposure, the volatility of the fund can be determined. Therefore, one should carefully analyse the portfolio exposure of a fund before investing in them.
There are many ratios one can use to evaluate mutual funds. However, the following are a few of the key financial ratios that help in evaluating a retirement mutual fund:
It is the measure of performance of a mutual fund against its benchmark. A positive alpha indicates the fund has outperformed the benchmark by the said percentage.
Standard deviation measures how much the return of a mutual fund deviates from its average. In other words, it measures volatility or risk in the fund. The higher the standard deviation, the more volatile the fund’s returns, hence raising the risk involved.
Beta is a measure of the sensitivity of a mutual fund when compared to the benchmark. It measures how the fund’s return changes when the market rises or falls. If the beta is less than one, the fund is less sensitive to the market movements. Whereas, if the beta is more than one, the fund is highly sensitive to market movements. However, if the beta is one, then the fund and market movements are in sync.
The portfolio turnover ratio measures the trading activity of a fund. In other words, it means the rate at which the securities are bought and sold in a mutual fund. A high turnover ratio indicates high transaction costs and high capital gains taxes. Hence a mutual fund is considered desirable when the turnover ratio is low.
It measures the performance of the fund in light of risks taken. In other words, investors can determine whether the returns from the fund are due to the risks undertaken or the investment choice of the fund manager. A high Sharpe ratio is considered good and indicates the fund has high risk-adjusted returns.
It measures the relationship between the portfolio of the mutual fund and the benchmark. A high value indicates that the portfolio’s performance is in sync with its benchmark. Whereas a low R-squared indicates changes in the benchmark doesn’t affect the portfolio much.
Mutual funds have certain costs associated with them, and the same is charged in the form of the expense ratio and exit load. The expense ratio includes fund management costs, marketing and distribution costs, transaction costs, etc. This is charged from the investors through NAV, hence reducing the profits for the investors. Whereas exit load is the charge the fund house cuts if the investor exits the fund before the stipulated time period. Investors have to ensure that the expense ratio isn’t too high and compare a fund’s returns with other funds after factoring in the costs.
Tax saving is one of the most important goals for all individuals who earn. Clubbing tax saving with investing will serve the purpose of saving tax as well as investing. However, investors also have to be cautious while redeeming their investments as returns from these investments are taxable. Hence investors have to invest in tax-efficient investments in case they want to save their retirement corpus. For example, an equity fund charges 10% tax on long term capital gains above INR one lakh. Whereas a debt fund charges 20% with indexation benefit on capital gains. Hence, investors have to keep the tax implications of retirement funds in mind before investing in retirement funds.