How to Build your pension fund via mutual fund investment?

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THE first route that comes to mind when one thinks of pension is insurance companies, but mutual funds also provides a facility related to pension in the form of pension funds or pension schemes. These funds aims to give the same benefit as a traditional pension plan. Here are some conditions related to pension plans by mutual funds that make them distinctive and a choice for individuals to consider.

Overall: Two funds present in India that provide pension for investors are Templeton India Pension Plan and UTI Retirement Benefit Pension Plan.

Their existence for over a decade gives investors a chance to go back and analyse their performance through times both good and bad. These funds are balanced schemes with a higher stake in debt, and the equity component usually restricted to between 30 per cent and 40 per cent of the portfolio. This balance in these long-term investment vehicles is needed to impart some element of stability in the portfolio through the debt exposure, and also provide growth potential through the equity component.

Invest anytime: One of the biggest benefits of using the pension fund provided by mutual funds is that like any other open-ended fund, there is the flexibility of investing any time that the investor wishes to put in money. This means that investors can put in large lump sum amount when they have the required funds and also can make multiple investments in the form of a systematic investment plan. The only other consideration is that investors can invest only till 58 years of age. After this age, they are able to take the payout from the fund.

Suitable withdrawal: On the other side of the equation is the withdrawal that individuals will take from the fund once they complete 58 years of age. Unlike many other options where individuals have to take back the money in a fixed manner, when it comes to a mutual fund, there is flexibility for them depending on their specific needs. For example, if a person wants a regular payout to come to him over the next 15 years, then this can be arranged. Even if there is a large amount that needs to be taken out of the fund then this can be arranged. This ensures that individuals are able to set the situation in the manner that they feel comfortable and this is an added benefit for the purpose of their financial planning.

Tax impact: The tax benefit available for the plan under Section 80C of the Income-Tax Act makes it qualify for the same deduction as several other products like PPF, NSC, EPF and ELSS. The impact of this is that the investment in the fund has a three-year lock in, which investors will need to factor in their planning. Investors can take out their money any time after this period, but will be have to pay an exit load if the investment is withdrawn before reaching 58 years. The redemption of the amount will be considered in the same manner as any other mutual fund redemption, but since this is a debt-oriented fund, there will be a long-term capital gains tax that will be applicable on the earnings from the fund.

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

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Download Tax Saving Mutual Fund Application Forms from all AMCs

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These Application Forms can be used for buying regular mutual funds also

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1. ICICI Prudential Tax PlanInvest Online
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8. Sundaram Tax SaverInvest Online
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