Retirement is an important event in our life.Post retirement our regular income is going to be reduced significantly in the form of pension or stops at all if we are not subscribed to any pension plan.Life expectancy is increasing due to improved quality of life.We have good 25-30 years post-retirement which we would want to make more enjoyable.We’d never want at least financial constraints to come in our way of living a such a life. Retirement Mutual Funds are there to take care of saving for our retirement.

It is too important to plan for your retirement in the early part of your life.If you don’t take it seriously,you are really going to suffer in those years of your life.You’d not realise how fast the time is flying and you reach your retirement .It is really difficult to reach out at a figure which would be sufficient to address all your financial needs in next 30 years.To be on safe side,you should attempt to save as much as possible while you are working.

If you belong to salaried class,it is highly likely that you are already enrolled for a retirement plan from your employer.New Pension System (NPS) is such a scheme in place since year 2004.NPS is a nice scheme where the employee and employer contribute (up to 10% of their salary) each for the retirement of employee.Though this scheme is income tax friendly under section 80C of Income Tax Act during the subscription phase but income you get from NPS after retirement is not tax free as per current guidelines.Moreover,you’ll get only 60% of the accumulated corpus in lump sum on your retirement while rest 40% through an annuity plan in instalments till 70 years of age.So do you believe that NPS is going to be sufficient for your retirement?

Retirement Mutual Funds Retirement Mutual Funds are a type of Mutual Funds which have been launched to meet the retirement needs only.As they are Mutual Funds,they are equity based tools.The savings under Retirement Mutual Funds have been made eligible for income tax benefits under section 80C.Moreover,being equity product,the corpus you get from retirement funds is eligible for benefits of Long Term Capital Gains,so the income from these funds is going to be tax free.

Retirement Mutual Funds function under two schemes – A Wealth Creation Scheme which aims to invest your capital in equities.The extent of equity exposure is kept minimum at 65% or up to 100%.The purpose is to achieve capital growth over long term.Other is Regular Income Scheme where the capital is invested in Debt instruments.In this scheme,the major chunk of portfolio consist of exposure to Debt markets and a small portion to equities (5-30%).The purpose is capital protection and decent growth in investment over long period.

Depending upon the division of portfolio in equity and debt markets,retirement funds work in two phases –

The Accumulation Phase – the early part of period of investing in retirement funds.The investment is in Wealth Creation Scheme.If you start investing at the age of 30 years,the Accumulation Phase usually extends till you are 45 years of age.The rationale is to get high income by taking high risk with equity exposure.

The Distribution Phase – Towards the later part of your working period,the investment is shifted to Regular Income Schemes.It usually begins from the age of 45 years to till 60 years of age.The rationale is to keep the capital protected by taking low risk with Debt market exposure.

You can start investing in Retirement Mutual Funds in lump sum or in small instalments, as low as ₹ 500, via Systematic Investment Plan (SIP) route.These funds have a lock-in period of 5 years.The investment in retirement funds goes till 60 years of age and after that you are eligible to redeem all your investment without any cost.You can also redeem before 60 years if need arises but will have to pay nominal exit load of 1%.Otherwise switching between between various plans and schemes is without any cost through out the whole period of investment.

Retirement Mutual Funds,being equity based,are risky investment but as they are under the supervision of professional fund managers and the investment horizon is long,so risk is reduced significantly.Equity and Debt market portfolio in these retirement funds is managed efficiently so that you get the best returns for your retirement.

Providing the flexibility to choose convenient investment amount,that too in instalments,income tax rebates on investments,management by professional fund managers,exemption of income under long term capital gains and great track record of equities in yielding best returns in long run makes the Retirement Mutual Funds a great option to accumulate wealth for your golden age.

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Hi Bikramjit,
Its wise for those considering retirement to key into a system that would boost regular income when they are no longer working.

From this post, it seems like the Retirement Mutual Fund is a better plan than the New Pension System (NPS).

The lump sum equity by taking high risk and getting higher income is something to consider!
I have shared this comment in where I read this piece on Retirement Mutual Funds.

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