Your money: Retirement schemes for low-risk investors

Investment advisors seldom recommend retirement schemes of mutual funds (MFs), though these are long-term products. Investor also get a tax deduction when they invest in these funds, the way they do in an equity-linked savings scheme (ELSS). 

There is also a longer lock-in, of five years. Some from the MF sector feel this is a positive. "The long lock-in allows fund managers to take a longer-term view while managing these portfolios," says Suraj Kaeley, group president-sales and marketing, UTI MF. He adds that the hybrid nature of these funds helps to curtail volatility.

Some think these funds are suited for investors close to their retirement or who want to take less risk. “Look at them as hybrid ELSS schemes that offer stable returns,” says Malhar Majumder, partner and consultant, Positive Vibes Consulting and Advisory. They are, as mentioned, recommended by quite a few for investors of around 55 years, few years away for retirement. Such people should preferably have lower equity exposure and higher allocation to debt. These funds serve this purpose, while providing a tax benefit.

However, these funds have not caught on among investors, for a variety of reasons. Says Anil Chopra, group chief executive officer, Bajaj Capital: “Retirement funds are not popular because only a few fund houses offer them. They also don't have a standard structure.” He says these funds are spread across three categories. Some belong to the equity multi-cap category, some are equity-oriented hybrid funds (balanced) and others are debt-oriented hybrids. Half the existing funds don’t even have a three-year record, says Chopra. Individuals, therefore, prefer a combination of ELSS and Public Provident Fund for tax-saving investments.

Among multi-cap funds, Tata Retirement Savings Fund-Progressive Plan is the only one that has existed for more than two years. The three-year and five-year returns are 20.97 and 15.47 per cent annually, respectively. The category average annual returns for multi-cap funds in the same periods are 20 per cent and 16.15 per cent, respectively.

Among hybrid funds, the oldest scheme, Franklin India Pension, has given 13.08 per cent a year over five years and 15.82 per cent annually over three years. Equity-oriented hybrid funds have returned 15.17 per cent and 17.85 per cent. UTI Retirement Benefit Pension, the oldest debt-oriented hybrid scheme, has  a 11.65 per cent and 13.46 per cent annualreturn over five and three years, respectively. The category average is similar.

While the returns are either at par or slightly lower than their peers, investors have also stayed away from the retirement category because of the five-year lock-in. "An exit load is also charged if you withdraw from these before the retirement age of 60," explains Srikanth Meenakshi, founder and director at FundsIndia.com. He also notes that none of Tata MF’s three schemes are eligible for tax benefits.

Investment advisors say there’s no uniqueness to these funds when compared to others in their structure or investing strategy. “Withdrawals from debt-oriented funds are taxed. An investor can maintain the same asset allocation in two funds, a diversified equity fund and a debt fund, to generate better returns. That will also be more tax efficient,” says Suresh Sadagopan, founder, Ladder7 Financial Advisories.

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