Retirement Mutual Funds

Retirement funds are a type of hybrid mutual fund that invests in both stocks and fixed deposit-like instruments. These funds are specifically designed to meet retirement goals and typically have a lock-in period of at least 5 years or until the investor reaches retirement age, whichever comes first.

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How Does Retirement Mutual Funds Work?

Retirement mutual funds work similarly to other mutual funds. Investors contribute money to the fund, which is then pooled together and invested in a diversified portfolio of assets by professional fund managers. The fund managers make investment decisions based on the fund's investment objectives, risk tolerance, and time horizon. Over time, as the investments grow, the value of the fund increases. Investors may choose to redeem their units in the fund at any time, subject to the fund's terms and conditions, or leave the investments to grow until retirement.

What are the Advantages of investing in Retirement Mutual Funds?

Investing in Retirement Mutual Funds offers several advantages for investors:

  • Tax Benefits under Section 80C

    Retirement mutual funds, also known as pension funds or retirement plans, often qualify for tax benefits under Section 80C of the Income Tax Act, 1961. Contributions made towards these funds are eligible for a deduction from taxable income, up to a specified limit. This provides investors with an opportunity to save on taxes while building a retirement corpus.

  • Earmarked Retirement Savings

    Retirement mutual funds provide a dedicated avenue for long-term retirement savings. By investing in these funds, investors can earmark a portion of their savings specifically for retirement, ensuring that they are not tempted to dip into these funds for other purposes.

  • Diversification

    Retirement mutual funds typically invest in a diversified portfolio of assets, including equities, bonds, and other securities. This diversification helps spread risk across different asset classes and reduces the impact of market volatility on the overall portfolio. By investing in a diversified portfolio, investors can potentially enhance returns while minimizing risk.

Limitations of Investing in Retirement Funds

While Retirement Funds offer several advantages, they also come with certain limitations and risks that investors should consider:

  • Interest Rate Risk

    Like all investments, retirement mutual funds are subject to market risk. The value of the fund's investments can fluctuate based on factors such as economic conditions, interest rates, geopolitical events, and company performance. While diversification can help mitigate some of this risk, it cannot eliminate it entirely. Investors should be prepared for the possibility of temporary declines in the value of their investments, especially during periods of market volatility.

  • Investment Restrictions

    Some retirement mutual funds may have specific investment restrictions or guidelines that limit the types of securities they can invest in. For example, certain funds may have restrictions on investing in certain sectors or industries, which can limit the fund's potential returns. Investors should review the fund's investment objectives and portfolio holdings to ensure they align with their own investment preferences and risk tolerance

  • Liquidity Risk

    Retirement mutual funds are designed for long-term investing, and investors may face liquidity constraints if they need to access their funds before retirement. While investors can typically redeem their investment in a mutual fund at any time, there may be penalties or restrictions for early withdrawals, especially in tax-advantaged retirement accounts like IRAs or 401(k)s. Investors should consider their liquidity needs and investment time horizon before investing in retirement mutual funds.

Points to consider before investing in Retirement mutual funds

Before investing in a Retirement mutual fund, it's crucial to consider several key points to make informed investment decisions and manage risks effectively. Here are some points to consider:

  • Retirement Goals

    Clearly define your retirement goals, including the desired retirement age, lifestyle expectations, and retirement income needs, to determine the appropriate investment strategy.

  • Time Horizon

    Consider your time horizon until retirement and choose an investment strategy accordingly, balancing the need for growth with the need to protect savings as retirement approaches.

  • Fund Selection

    Research and compare different retirement mutual funds based on factors such as past performance, fund manager expertise, fees, and investment strategy, to find the most suitable option for your retirement savings.

How to start investing in Retirement Funds with INDmoney?

Now that you have understood what is Retirement mutual fund, you need to know how easily you can start your investment with INDmoney. Just follow these simple steps given below, to start your mutual fund investment journey with us.

  • Step 1

    Download the INDmoney app and create your free investment account by completing your KYC ( Know Your Customer).

  • Step 2

    Once your Free investment account is ready, you can either search for a Retirement Mutual Fund or go to the mutual fund section and tap on Retirement Funds.

  • Step 3

    Choose a Retirement Funds by looking at aspects like past returns, volatility, downside capture ratio, AUM, Expense ratios and underlying stocks and sectors.

  • Step 4

    You can choose to set up SIP in Retirement Funds or even invest as lumpSum. Once you are on the individual Retirement Funds page click from the bottom “One-time” for lump sum investment or “SIP” for systematic investment plan. 

  • Step 5

    Choose the amount that you want to invest as SIP or LumpSum.

  • Step 6

    Set up payments. If you choose to set up SIP in Retirement mutual funds,  you can do a free automatic pay set up via bank mandate or UPI. If you choose to invest in lumpsum (one-time) then you can pay via UPI, netbanking, NEFT or RTGS.


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