For a better retirement

The tax-saving option from mutual funds is not restricted to the popular ELSS; there are also retirement plans offered by a few asset management companies (AMCs). Under these schemes, investors invest for a very long term as early withdrawal by way of redemption is discouraged before one retires, with the standard retirement age taken as 58 years.

Investment in retirement plans qualifies for tax deduction under Section 80C. The schemes have been approved by the CBDT, according to which the scheme can have an investment exposure of 40 per cent in equities and the rest in debt. Although the equity exposure may not seem to be high for long-term investors, even this level of equity allocation over different market cycles should help in creating a sizeable retirement corpus. These funds work in two parts—first is the accumulation phase when one can invest in these funds towards building a retirement corpus and also get tax benefits, and the second phase when the corpus can be utilised as payout in retirement. The payout phase can be in lump sum or work as a regular payout by way of a systematic withdrawal option. These plans were introduced two decades ago with UTI Retirement Benefit Pension and Franklin India Pension Fund being the only two funds in vogue till, in early 2015, Reliance AMC introduced a retirement plan, with several other AMCs planning to launch similar schemes. While they have less equity exposure as compared to ELSS funds, these schemes have the built-in discipline to ensure that you save towards your retirement with tax savings and also build a sizeable corpus.

olmdesk@outlookindia.com