Retirement Mutual Funds: How to Invest in Them?

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Retirement Mutual Funds: How to Invest in Them?

Retirement Mutual Funds: An Overview

Every person invests for a goal or a purpose, and each one has a different set. But a majority of the savings are made for the future, to buy something or to secure it. It is very important to save a part of your income for your retirement (known as retirement funds or pension funds) because you will not be earning an active income once you retire. Hence, a Retirement Fund plays a very crucial role in everyone’s life. And one should plan for the future and contribute some part of their income towards it. There are an ample number of investment options available to people to save for their retirement. A couple of the options include pension schemes, and life insurance policies. Although, not many are aware that mutual funds also offer one such investment avenue, known as Retirement Mutual Fund, which is a great option available to the people as well. This article will tell you everything about it and what you should consider before investing.

Explain the Different Features of Retirement Funds

As the name suggests, a Retirement Fund or a Pension Fund is a fund, in which the investor contributes (or someone on behalf of the investor) a part of his income for retirement.

Hence, it is very important to contribute some part of your income to retirement fund investment.

The majority of the funds offer the investor to withdraw the fund in either a lumpsum amount or in a monthly annuity amount. A lot of this fund gives the investor a chance to plan systematically for his future and how he wants to live after he retires. Everything needs to be planned because, after retirement, the investor does not have access to an active income. These funds offer a fixed benefit as the amount is decided systematically and is not subject to market risks. These funds invest the amount in low-risk assets such as the ones issued by the government, to provide a safe and secure future.

As mentioned above, the purpose of having this fund is to have a steady source of revenue after the investor retires. One can consider it as deferred pay as it provides financial security and enough money that the individual plans to have which would be sufficient for his necessities.

People in India prefer to receive it as a monthly annuity, to have a systematic plan and measured expenses. Retirement Funds in India are a key part of the lives of Indians and a must-have for all.

The following are the features of Retirement Mutual Funds:

  • Low-risk: The amount is invested into low-risk assets such as government securities, thereby reducing the risk and ensuing stable and steady returns.
  • Withdrawal: The fund can be withdrawn after retirement, in a lump sum amount or a SIP.
  • Hybrid in nature: The amount can be invested in bonds as well as equities to increase the returns. Although the equity exposure is kept minimal to reduce the risk.
  • Liquidity: These funds carry a heavy exit load and have low liquidity.
  • Lock-in period: These funds have a lock-in period of 5 years (might vary based on fund houses) as compared to 3 years for ELSS. Although it is recommended to keep for a longer period as compounding will help the money grow at a rapid pace.

3 Types of Retirement Funds

There are mainly three types of plans available to investors to invest in a retirement mutual fund. They are as follows:

  • Debt Funds- In this, the entire amount is invested in government securities and other low-risk securities. It is the most famous form of retirement fund as it is the safest and ideal for conservative investors.
  • Unit linked plans- In this, the amount is invested in debts as well as equities, equally. They carry higher risks but also offer higher returns.
  • Hybrid Funds- In this type, the investor can invest the amount in funds offered by the government, such as National Pension Schemes (NPS). These are government-backed securities in which the amount is invested in equities as well as debt. The investor can withdraw 60% of the amount right when he retires and the remaining 40% can be withdrawn on an annuity basis. The maturity amount on these funds is tax-free.

One can invest in these Retirement Mutual Funds in two ways:

  • Lumpsum investment - In which the entire amount for retirement is invested in one payment. It is a substantial amount and is generally preferred by individuals with good cash reserves and a high risk appetite.
  • Systematic Investment Plan (SIP) - In this, the amount is paid in installments(monthly, quarterly, etc) in a systematic planned manner.

Advantages of Retirement Mutual Funds

There are many advantages of investing a certain amount of your income into a Retirement Fund. The following are a few of them:

  • Flexible - The main advantage of a Retirement Fund is that Unlike NPS or any other retirement policies, one does not have to compulsorily opt for an annuity payout in a mutual fund retirement plan. Here, an investor has a choice to withdraw the fund amount in either lumpsum or monthly payouts depending upon his/her financial needs and plans. 
  • Tax benefit - Investing in these funds offers the investors a chance to avail of tax deductions under section 80CCC of the Income Tax Act of 1961. Up to Rs.1,50,000 of the total contribution made can be deducted from tax. Although, the withdrawals from these funds are subject to taxation.
  • Long-term savings - The main purpose of the Retirement Fund is to provide financial stability to individuals post-retirement. These schemes create an income that can be used by the investor for further investment after he retires.
  • Offers Insurance- The majority of the retirement schemes provide insurance cover which protects an insurer from financial problems, in case of the investor’s demise before retirement. In case an investor faces any medical emergency, this scheme provides an option to withdraw lump-sum money for the same.
  • Protection against inflation- One can protect their asset against inflation by investing in these funds. The majority of these funds offer compensation against inflation. The investor has the option to withdraw 1/3rd of the total corpus after retirement. The remaining 2/3rd can be utilized as a monthly annuity by the investor.
  • Risk-free investment- Having an extremely low-risk profile makes a retirement fund one of the safest avenues of investment. This fund provides the investor an opportunity to invest in government securities for an acceptable rate of return or to invest in a hybrid fund to earn better returns.  

Key Takeaways

  • A person can claim tax deductions up to Rs.1,50,000 of total investment under section 80CCC while investing in a retirement fund.
  • These funds offer the highest returns among other investment avenues in this category.
  • It has a low lock-in period.
  • There are multiple options available to the investor who can invest in the form of a lump sum or SIP.

Best Retirement Mutual Funds in India

There are many Retirement Funds offered by various fund houses. The following are a couple of the famous retirement mutual funds:

This scheme is launched by ICICI Prudential Mutual Fund. This Mutual Fund has a fund size of ₹188.16 Cr and an Expense Ratio of 1.19% This fund has 92.92% investment in domestic equities, out of which, 64.8% is in large-cap stocks and 8.85% is in mid-cap stocks and 9.9% is in small-cap stocks. It has a NAV of ₹18.74 while carrying moderate risk and has been providing high returns as compared to its peers in the category.

This scheme is launched by SBI Mutual Fund. This Mutual Fund has a fund size of ₹146.17 Cr and an Expense Ratio of 0.89% This fund has 18.62% investment in domestic equities, out of which, 9.71% is in large-cap stocks and 2.75% is in mid-cap stocks and 2.93% is in small-cap stocks. Whereas, 61.11% of the total amount is invested in Debt, out of which 41.41% is invested in government securities, and 19.7% is invested in low-risk securities. It has a NAV of ₹11.3237 and carries moderately high risk.

* Please Note: The above-mentioned Mutual Funds might not be the perfect fit for all as everyone’s investment purpose, risk appetite, and investment time horizon are different. The data is updated as of 9th September 2022.


There are several investment avenues available to the people. One must have proper knowledge before investing their hard-earned money. There are many options to invest money for their retirement and Retirement Mutual Funds are one of them, and one should consider them for investing as these have several benefits as mentioned in the article above, such as providing high returns while minimizing risks.

One should consider some factors before choosing the retirement fund one wants to invest in. They should look at the number of years left for their retirement, and the risk they are willing to take, and should think about the long-term goal to earn higher returns.

One should also check factors such as the NAV, historical returns, and fund managers’ experience before choosing the fund to invest in.

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