Summary

While there are many different types of mutual funds to achieve various financial objectives, retirement funds are exclusively reserved for retirement planning. Read this post to know more about these funds.

Content

Financial independence is critical to living your dream retirement life. And to achieve this post-retirement independence, you must regularly invest during your working life. While many different ypes of mutual funds can be utilized for retirement planning, one category is solely dedicated to this critical life goal- retirement or pension funds.

These schemes aim to deliver a reliable source of post-retirement income to help you enjoy the second innings of life just like you've imagined. Let's understand these mutual fund pension plans in detail-

What are Retirement Mutual Fund Schemes?

Solution-oriented schemes are one of the five mutual fund categories available in India. The other four are equity, debt, hybrid, and other schemes like index funds and ETFs. Retirement or pension fund is one of the types of solution-oriented mutual fund schemes.

These are open-ended schemes that help people invest for their retirement. While most of the investment is made in government securities for their low-risk and steady returns, some of the portfolio is also invested in equity and debt securities to generate potentially higher returns. These pension schemes have a lock-in of 5 years or until retirement, whichever is earlier.

Why Choose Pension Mutual Funds for Retirement Planning?

Here are some of the reasons why you should consider pension mutual funds for retirement planning-

• Flexible Payouts

  Retirement mutual funds allow investors to choose a payout option as per their goals and financial requirements. You can either opt for monthly payouts if you need a steady source of post-retirement income or choose a lump sum payout to receive the proceeds all at once.
  
  Also read about : Aditya Birla Sun Life Retirement Fund - The 40s Plan

• Healthy Diversification

  Retirement schemes can invest in a mix of equity, government securities, and other debt-based securities. The combination of these securities can add more diversification to your investment portfolio, prevent overexposure to any particular asset class, and reduce investment risks.

• Fund Options

  Several fund houses offer such retirement or pension mutual funds. It ensures every investor can choose a scheme per their goals and risk appetite. Even after investing, if you feel like the fund is not performing as expected, you can switch to a different scheme after the lock-in period ends.

• Informed Decision-Making

  SEBI has introduced stringent measures to make mutual funds more transparent for investors. For instance, the fund house must disclose all the scheme-related information at regular intervals. Transparency helps investors make informed decisions.

How to Select the Best Pension Mutual Funds?

Keep these things in mind before investing in these pension schemes-

• Portfolio Composition

  While pension schemes invest across securities from equity and debt markets, the exposure to a particular asset class can vary between schemes. For instance, a retirement scheme can have a considerably higher equity exposure compared to other schemes, making it potentially riskier.
  
  So, ensure you check the portfolio composition of the scheme to ensure it matches your objectives, time horizon, and risk appetite.

• Past Performance

  The past performance of a mutual fund scheme has no bearing on its future. However, it can provide helpful insights to make the right investment decision.
  
  For instance, if a pension scheme has delivered consistent returns in the last 3-5 years, it can be a more reliable option than a scheme with a volatile past performance.

• Investment Costs

  There are a few different costs, like expense ratio, exit loads, etc., associated with mutual fund investments. These costs directly impact the returns you generate from the investment.
  
  So, check the costs of the scheme you’ve selected and compare it with other schemes from the category to ensure they are in line with the industry average.

Planning Your Retirement with Pension Mutual Funds

Retirement planning with mutual funds is a smart way to get closer to your dream of living a comfortable and financially independent retirement life. But as these pension schemes deliver better returns in the long run, start investing in them as early in life as possible for the best results.

You can compare and select retirement funds on your own or consult with an investment advisor to build your retirement portfolio.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.