For many, retirement is one distant goal that is often ignored. Mutual fund investors have the option to either create a retirement portfolio comprising of MF schemes selected on their own (across asset classes and market caps) or invest through a dedicated MF schemes with retirement as their focus.
Aditya Birla Sun Life Mutual Fund is launching one such dedicated scheme titled Aditya Birla Sun Life Retirement Fund, which is an open-ended retirement solution oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier). The NFO opens on February 19, 2019 and closes on March 5, 2019.
“Retirement focus mutual fund are just like any other diversified mutual fund but with a set objective. Naming it ‘retirement’ makes it focused towards the long term goal of retirement. This helps investors to think really long term,” says Milin Shah, Head Product Development & Planning at HappynessFactory.in
Being a retirement dedicated scheme, the units of Aditya Birla Sun Life Retirement Fund cannot be redeemed until completion of 5 years from the date of allotment or till the unit holder reaches age 60, whichever is earlier.
The fund aims to help investors plan their retirement with four asset allocation plans to suit various age groups and different risk profiles of an individual. “Have a clear idea as to what exactly you require post retirement because that would decide how much you need to invest and how many years you should invest etc. A mutual fund retirement plan is just one of the instruments which could help you build a corpus. So, it is an instrument of planning but not the whole planning,” says Bhavesh Sanghvi, CEO, Emkay Wealth Management.
The four investment options as per suitability of various age groups are:
The 30s Plan: The plan has the mandate to invest 80-100 % of the corpus in equity and equity related instruments and the rest in debt and money market instruments.
The 40s plan: The plan has the mandate to invest between 65-80% of the corpus in equity and equity related instruments and the rest in debt and money market instruments.
The 50s plan: The plan has the mandate to invest between 75-100% of the corpus in debt and money market instruments.
The 50s Plus Debt Plan: This plan is aimed at those nearing retirement age, which invests 100% of its investments into debt & money market instruments.
Depending on the plan, the benchmarks are as follows:
The 30s Plan –S&P BSE 200
The 40s Plan -CRISIL Hybrid 35+65 -Aggressive Index
The 50s Plan -CRISIL Short Term Debt Hybrid 75+25 Fund Index
The 50s Plus-Debt Plan–CRISIL Short Term Bond Fund Index
As per the fund house website – “The 30s Plan aims to invest primarily in a well-diversified portfolio of equity and equity related securities. The stock selection process proposed to be adopted is generally a bottom-up approach seeking to identify companies with long term sustainable competitive advantage.
The fund would also use a top-down discipline by ensuring representation of companies from all key sectors in the respective benchmarks. The objective would be to identify businesses with superior growth prospects and strong management available at a reasonable valuation and offering higher risk-adjusted returns. The fund would follow a blend of bottom-up approach (for stock selection) and top-down approach (for sector allocation).
The fund would follow flexi cap approach on market cap depending on risk-return profile of various sub-segments of the market.”
Switching between the plans is also allowed. One may start SIPs or invest lump sum in the 30s Plan option, which is ideally suited for those who have enough years to their retirement. Nearing retirement, one may switch to the 50s Plan to de-risk the corpus from volatility.
What to do
This is a new scheme and does not have any performance history. Alternatively, there are other existing schemes focusing on retirement goal. Franklin India Pension Fund, UTI Retirement Benefit Pension Fund, HDFC Retirement Savings Fund, Tata Retirement Savings, Principal Retirement Savings and ICICI Prudential Retirement Fund are some of them. “There are existing retirement plans which have done quite well, like the Tata, Franklin and UTI plans, which have established performance and track record. While investing in new funds, it is important to understand how the existing funds have done to make an informed choice. At a time when we have seen a lot of turmoil due to low rated papers and defaults, it is important that we study the proposition thoroughly before taking the plunge,” says Sanghvi.
See their asset allocation mix as some of them could be debt-oriented while others may be balanced in nature. So, based on your risk profile decide whether to invest in this NFO or else go with any of the existing ones after looking at their long term fund performance against their benchmark. “If someone is investing in Retirement Solution fund, it is very important to know the category of scheme. Most of the retirement solution funds have Aggressive (more equity), Hybrid (combination of equity and debt) and Conservative (full debt) category of schemes. Since, one would be investing for a very long period, it makes sense to invest in combination of Aggressive and Hybrid funds, rather than investing in Conservative (full debt),” cautions Shah.
Even though like all other such retirement MF schemes, this too comes with tax benefit under section 80C, it suits those who would require a dedicated scheme to meet the goal. Whichever scheme you choose, run the scheme till your retirement by adequately provisioning for de-risking while approach retirement, to reap the benefits over the long term.