Pension schemes next big thing for MFs in 2015?

Reliance Mutual Fund, one of the country’s biggest fund house, recently received permission from the central government to launch its equity oriented pension scheme. This will be the third retirement linked pension scheme launched by an Indian fund house under section 80C of the Income Tax Act. Other fund houses like SBI Mutual Fund, Axis Mutual Fund and DSP BlackRock Mutual Fund have also filed offer documents with market regulator Sebi to launch their pension plans.

The Reliance Retirement Fund has been notified as a pension fund under Section 80C(2)(xiv) of the Income Tax Act, offering tax deductions for investments up to R1.5 lakh. So far, only UTI Mutual Fund and Franklin Templeton Mutual Fund had approvals to launch pension schemes.

UTI Retirement Benefit Pension Fund was launched in 1994, while Franklin India Pension Fund hit the market in 1997 and both are pre-dominantly debt-oriented schemes.

Sundeep Sikka, CEO of Reliance Mutual Fund says, “It’s quite positive for the industry and the retirement linked pension scheme is a new concept in India. It will take some time for investors to get used to such products. But with our fund management expertise and solid track record of our funds, we are quite confident that we will provide value to our investors and help them create long-term wealth.”

Reliance Retirement Fund’ will consist of two schemes; one will be a wealth creation scheme which can invest 65-100% in equities while other will be an income generation scheme which will have exposure of 5-30% in equities. There will be lock-in period of five years from the date of allotment and the fund will have an exit load of 1% if investments are redeemed before 60 years of age.

Market participants say this move can bring more relief to the mutual fund industry and get in long-term money. “Historically, most retail investors move out within four-five years of investment into equity funds. But now with other fund houses coming to launch retirement linked pension schemes, it will be a significant step for the mutual fund industry,” says a CEO of another top fund house. However, fund houses will find it difficult to convince people to invest in such schemes because assets of two existing retirement linked pension plans have corpus of less than R2,000 crore. To take advantage of such schemes, fund houses have to reach out not only to urban centers but also semi-urban and rural areas.