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What Are Retirement-Focused Mutual Funds? Check the Performance Of Top Three Funds

Retirement funds are solution-oriented mutual fund schemes with a five-year lock-in.

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Outlook Money
December 15, 2023
Retirement Planning Should Not Be Ignored

Retirement Planning Should Not Be Ignored

Retirement planning requires long-term planning, consistent investment, and regular review. A good portfolio is well-diversified with debt, equity, etc. Besides fixed-income instruments like provident funds (PF), fixed deposits (FD), equity funds, national pension system (NPS), etc., investors can also explore solution-oriented retirement-focused mutual funds. Let us learn more about these Retirement-Focused Mutual funds and check their performance.

What Are Retirement Mutual Funds?

Retirement-foused mutual funds are focused funds for the golden years with a lock-in of at least five years or the retirement age, whichever is earlier, as per the Securities and Exchange Board of India’s (Sebi) scheme guidelines. Those nearing retirement can explore this option, which offers liquidity and a tax benefit of up to Rs 1.50 lakh under Section 80C of the Income-tax Act, 1961.

As of November 30, 2023, there were 27 retirement mutual funds, with Rs 22,680.43 crore of net assets under management (AUM), held by only 11 asset management companies (AMCs), including UTI, Franklin, SBI, HDFC, and ICICI offer retirement schemes.

Latest Mutual Fund Data:

The HDFC Retirement Savings Fund, Equity Plan, has the largest AUM of Rs 4254.12 crore, followed by the UTI retirement fund at Rs 4,156.47 crore, and the Nippon India Retirement Fund Wealth Creation Scheme at Rs 2,813.28 crore, as of December 14, 2023.

In November 2023, the total fund mobilization in the retirement fund category was Rs 226.40 crore, and the net inflow was Rs 107.48 crore.

AMCs provide different portfolio options, such as aggressive, conservative, hybrid, etc. Here are the top three funds based on return.

One Year:

ICICI Prudential Retirement Fund Pure Equity Plan has grown 30.03 percent in a year as of December 15, 2023. It is significantly higher than its benchmark NIFTY 500 Total Return Index return of 19.94 percent. In the case of direct investment (direct investment with the AMC), the returns are typically a tad higher than the returns of regular investment (investment through intermediaries). Thus, it was 31.75 percent for the same scheme of ICICI in one year.

HDFC Retirement Savings Fund Equity Plan generated 26.97 percent from the regular plan (through intermediaries) and 28.44 percent via the direct option, beating the benchmark return of 19.94 percent. ICICI’s retirement fund with a Hybrid aggressive option came third, with a 24.79 percent return compared to its benchmark, CRISIL Hybrid 35+65 Aggressive Index, which returned 14 percent.

Three Years:

ICICI Prudential Retirement Fund Pure Equity Plan secured the top spot in the three-year returns category as of December 15, 2023. It grew 27.60 percent in the regular class and 29.33 percent in the direct option, well beyond the benchmark return of 20.43 percent.

HDFC Retirement Savings Fund Equity Plan rose 27.05 percent in three years, followed by Nippon India Retirement Fund Wealth Creation Scheme, which generated 21.01 percent through regular investment.

Five Years:

HDFC Retirement Savings Fund Equity Plan and HDFC Retirement Savings Fund Hybrid Equity Plan generated the highest return in five years, the minimum investment period in a retirement plan before the retirement age.

HDFC Retirement Savings Fund Equity Plan gave a 20.37 percent return compared to its benchmark NIFTY 500 Total Return Index return of 17.11 percent in the same period. Similarly, HDFC Retirement Savings Fund – Hybrid Equity beat its benchmark NIFTY 50 Hybrid Composite Debt 65:35 Index returns of 13.37 percent with a 15.37 percent return.

Tata Retirement Savings Progressive is also in the top three retirement-focused mutual funds in terms of returns with a 14.04 percent return; however, it’s less than its benchmark NIFTY 500 Total Return Index.

Ten Years:

Out of 27 schemes, only five schemes are more than 10 years old, and the top three schemes in terms of returns are Tata Retirement Savings Progressive, Tata Retirement Savings Moderate, and UTI Retirement Fund, with 16.26 percent, 16.09 percent, and 10.40 percent returns, respectively. While TATA retirement schemes beat their benchmark, the returns of UTI schemes were lower than the benchmark’s 11.30 percent.

Experts advise allocating a portion of the portfolio in equity to sustain inflation; it is up to the investor to choose based on risk appetite. As mutual funds do not guarantee returns, one should look at not only the returns but also parameters like the expense ratio, fund manager, fund allocation, lock-in, tax benefits, etc., before deciding.

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