There are lots of different options for investments to build corpus for retirement apart from those provided by Employer. Public Provident Fund (PPF), National Pension System (NPS), Pension Plans from Life Insurance Companies, Various types of long term Mutual Funds, Direct Stocks Investments, PMS/AIF are the primary means build significant long term retirement corpus. PPF is fixed income instrument with very little volatility, but with low return grade is not a great multi-decade horizon Retirement Investment instrument. Whereas Pension Plans from Life Insurance companies are expensive in terms of their various charges, including the charges for a mandatory life insurance component bundled along with this.
Considering these factors, NPS and Mutual Funds are some of the most cost effective moderate to high return Retirement investment avenues.
National Pension System (NPS) Details
There are two types of NPS. Tier I is the actual Retirement Investment vehicle, Tier II is mostly a regular savings instrument.
Tier I : Investment can be done till 60 years of age. After 60 years till 75 Years of Age 60% of total investment corpus can be withdrawn Tax Free (through multiple partial withdrawal or one time full withdrawal). Remaining 40% of the investment corpus has to be received as monthly pension. No Withdrawal possible before 60 years, which allows the invest corpus to grow and not get disturbed by any short term monetary needs. Up to 75% of the investments could be contributes to Equity and 25% must be invested in some other fund (Govt Security or Corporate Debt Funds or Alternate Investment Fund). NPS provides option of switching between Fund Managers and Types of funds.
The Fund Management charges are extremely low in NPS , typically less than 0.1% even for Equity Funds. This is extremely low compared to the Fund Management charges for other Equity investment Alternatives in India and even globally.
We have complete dedicated webpage to provide details on NPS, Please read HERE.
Long Term Retirement Investment through Mutual Funds
Investing in mutual funds for retirement is a popular choice in India due to the flexibility, potential for growth, and accessibility of these funds. Here’s how to effectively use mutual funds to build a robust retirement corpus:
1. Start with Equity Mutual Funds for Long-Term Growth
Equity Mutual Funds: These are ideal for younger investors with a longer investment horizon. Equity funds, including large-cap, mid-cap, and multi-cap funds, offer the potential for high returns over the long term.
ELSS Funds: These tax-saving funds come with a 3-year lock-in period and offer tax deductions under Section 80C of the Income Tax Act. ELSS is suitable for investors who want tax savings along with equity exposure.
Systematic Investment Plan (SIP): Investing through SIPs in equity mutual funds is a disciplined approach that averages costs and benefits from market volatility over time.
2. Shift to Balanced Funds as Retirement Approaches
Hybrid or Balanced Funds: As retirement nears (usually ~5 years away), gradually shift some investments to balanced funds that combine equity and debt. This reduces risk while still allowing for growth.
3. Opt for Debt Mutual Funds as Retirement time approaches for Stability and Income
Debt Mutual Funds: These are essential to reduce portfolio volatility and ensure a stable income. Funds such as short-term debt funds, long-term debt funds, and dynamic bond funds are suitable for retirees or near-retirees looking for stability.
Systematic Withdrawal Plan (SWP): With debt funds, retirees can set up an SWP to receive a steady, tax-efficient monthly income. This approach also keeps some capital invested for potential growth.
4. Alternatively use Retirement-Focused Mutual Funds
Several fund houses in India offer retirement-focused mutual funds designed specifically for long-term retirement savings. These funds usually have a predefined asset allocation that changes as retirement approaches, gradually moving from equity to debt to minimize risk.
5. Monitor and Rebalance Regularly
Review Annually: Periodic review of your mutual fund portfolio ensures alignment with your retirement goals. As you approach retirement, rebalance to increase debt exposure, ensuring stability and income.
Details of few Retirement Mutual Funds
There are many Retirement Mutual Funds in offered by various Fund Houses. Most of these funds have lock-in for 5 year and provide different Investment Approaches for different Age Group (few funds don’t have such options). These are defined based on the above mentioned approach, start with Aggressive (Full Equity), move slowly to Moderate (Hybrid Aggressive funds) and then to Conservative ( Hybrid Conservative or Debt Funds). Here’s a list of some popular retirement-focused mutual funds in India, along with their investment categories:
HDFC Retirement Savings Fund
Investment Category: Multi-plan options (Equity, Hybrid-Equity, Hybrid-Debt)
ICICI Prudential Retirement Fund
Investment Category: Multi-plan options (Pure Equity, Hybrid Aggressive, Hybrid Conservative)
Nippon India Retirement Fund
Investment Category: Multi-plan options (Wealth Creation, Income Generation)
Tata Retirement Savings Fund
Investment Category: Three plans (Progressive, Moderate, Conservative)
Franklin India Pension Plan
Investment Category: Hybrid-Debt
UTI Retirement Benefit Pension Fund
Investment Category: Hybrid-Debt
Aditya Birla Sun Life Retirement Fund
Investment Category: Multi-plan options (The 30s, The 40s, The 50s)
SBI Retirement Benefit Fund
Investment Category: Multi-plan options (Aggressive, Moderate, Conservative)
Conclusion
Depending on investors own need, Age and Investment mindset, Retirement Investment strategy could be defined, which could be mix of NPS and Mutual Funds. In terms of Mutual Funds, it more active investors could choose some suitable Diversified Equity Fund or ELSS Tax Savings funds for Early stage investments and making necessary changes during yearly review, whenever needed. A more passive investor chose for Retirement Mutual Fund with Auto switching between investment strategies based on investors age.
Through us, you could invest in all types of NPS schemes . At the same time, we could help you to finalize on Mutual Fund based approach based on your Personal Needs considering all factors. Even for NRI/OCIs , we could help in building Retirement Corpus in India, in case later they decide to spend some part of Retirement life India.
India Investment Corner 