Low-risk investors may opt for retirement schemes offered by mutual funds

Equity-linked savings schemes (ELSS) are the most widely recommended instruments for tax saving. But, these schemes are equity-oriented. What if an investor is looking for a hybrid or debt scheme that offers tax saving? They should look at retirement plans offered by mutual funds.


Retirement funds, however, can be confusing. Five fund houses offer retirement schemes across different categories. HDFC Mutual Fund and Tata Mutual Fund, for example, have hybrid conservative, hybrid aggressive and equity multi-cap. Some others such as Franklin Templeton Mutual Fund and UTI Mutual Fund offer retirement products in the balanced fund category.


Most of these schemes come with a five-year lock-in. Also, Tata Mutual Fund’s schemes don’t offer tax benefit, while the others do. If an individual is looking for an equity fund with a tax-saving option, ELSS make more sense, according to fund analysts and investment experts.


“Retirement schemes make sense for static asset allocation through balanced funds, or debt-oriented funds that offer tax benefit,” said Kaustubh Belapurkar, director-fund research, Morningstar Investment Advisor. Financial planner Malhar Majumder uses debt-oriented schemes for clients close to retirement, or already retired. Such investors are either reducing their equity exposure, or have already moved from equity to debt. “If an investor is falling short of the Section 80C limit of Rs 1.5 lakh, and is fine with the five-year lock-in, we recommend a retirement fund,” he said.


One reason financial advisors don’t recommend equity funds in the retirement space is the lack of track record. Among funds that offer the tax benefit, there are two equity products. HDFC Retirement Savings-Hybrid Equity is yet to complete three years. Its one-year return is at -6.11 per cent. Reliance Retirement-Wealth Creation was launched in 2015. The three- and five-year returns are -9.14 per cent and 12.46 per cent respectively. The category average of ELSS for one year is -5.79 per cent. One-year returns of many funds are better than that of the two schemes. “We look at funds in existence for three years. But as we analyse them based on rolling returns, they need to have about a five-year track record,” said Vidya Bala, head, fund research, FundsIndia.com. Most funds in the retirement category have returns on a par or slightly lower than their peers.


But, investors have stayed away from them because of the five-year lock-in. Also, fund houses charge an exit load if an investor withdraws from them before the retirement age of 60. Other than the tax benefit, investment advisors say there’s no uniqueness to these funds, if one compares their structure or investing strategy with others. An investor always has the option to achieve the same goals or objectives by investing in other funds.

Don’t just invest in these funds for tax benefit. “Be it any mutual fund, always pick them based on portfolio strategy and performance. Saving tax is an additional benefit,” said Bala.

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