Reliance Retirement Fund-Is it a best pension plan with 80C benefit?

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Recently Reliance Mutual Fund came up with NFO called Reliance Retirement Fund. This pension fund offers you the feature of investing in equity and tax benefit under Sec.80 C as well as. So whether is it a good pension plan with a tax benefit? Let us see.

Reliance Retirement Fund

First, let us see the feature of this fund.

  • This is an open-ended fund. Therefore, you can invest in this fund anytime.
  • This is the first such notified equity, pension mutual fund. The earlier two funds are debt oriented balanced funds. They are already discussed in my earlier post as “Two Mutual Funds-Tax Efficient (Sec. 80C) and Pension Plans in India !!!“.
  • This fund offers you two type schemes.
  1. Reliance Retirement Fund-Wealth Creation Scheme-This is equity oriented balanced scheme. Where Equity exposure may go from 65% to 100% and Debt exposure may go from 0% to 35%. This scheme is suitable for those who have a lengthier accumulation phase of their retirement. It means suppose you are currently 30 years of age and your retirement age is 60 years. Then to accumulate your retirement corpus you can use this scheme where equity exposure at higher levels.
  2. Reliance Retirement Fund-Income Generation Scheme-This is the Debt type of fund. Where Equity exposure may go from 5% to 30% and Debt exposure may go from 70% to 95%. This scheme is suitable for those who are nearer to retirement age. Suppose your retirement age is less than 5-7 years, and then you can opt this scheme. Reason is, in this scheme, equity exposure is not at the higher level. Hence, protection to your invested principal.
  • Switching between these schemes is at free of cost.
  • There is a lock-in of 5 years for this scheme. This lock-in is not applicable to within fund switches like wealth creation scheme to income generation scheme or vice versa.
  • There is an exit load of 1% if you try to withdraw within 60 years of your age. Again, this exit load will not apply to intra-fund switches.
  • Indian residents and NRIs are also allowed to invest in this scheme.
  • This fund offers “Auto Transfer Facility.” Under this, your accumulated corpus will be moved automatically from wealth creation scheme to income generation scheme once you reach the age of 50 years or the on the date specified by the investor.
  • This fund offers, “Step up facility.” Under this, you can set the increase your SIP instalment by a fixed amount at a pre-defined interval. This means that, suppose this year you have a monthly SIP of Rs.10, 000 and you can set Rs.5, 000 increases in your monthly SIP from next year. So for this year your SIP will be Rs.10, 000 and from next year the SIP will be Rs.15, 000 monthly.
  • Once you attain your retirement age (on or after 60 years of age) then you can opt for SWP Option (Systematic Withdrawal Plan). You can opt for monthly/quarterly/annual SWP option.
  • Whatever you invest in this scheme will qualify for tax exemption under Sec.80 C limit up to Rs.1, 50,000 (including other investment options available under Sec.80 C limit).
  • If your employers more generous and cares you more about your retirement, then they can join this scheme by deducting monthly SIP from your salary.

Whether you consider this for your pension?

Many negatives with few positives 🙂

1) A positive point is, this plan launched with the aim of investing your retirement corpus accumulation through equity. This is good view. Because many of us not understand the power of equity over long run and simply try to invest in products like typical endowment plans or some Bank FDs.

2) The second positive point is, apart from the ELSS mutual funds, this is a single equity product, which offers you a tax benefit under Sec.80 C (but with lock-in about 5 years). However, your investment must be tax efficient, but it does not mean you lose control over your investments. Therefore, the tax benefit is a good point. However, this must not be a sole criterion to invest in this fund.

3) This fund offers Wealth Creation Scheme. This is nothing but a typical equity oriented balanced mutual fund. So why to invest in NFO when you have plenty of well performing balanced funds are already present? I do not think it is wise to consider this fund over the existing consisting performing balanced funds like HDFC Balanced Fund or ICICI Balanced Fund.

4) This fund offers Income Generation Scheme. This is Debt Fund. This is not required when your accumulation period is more than 10 years or so. Because longer the duration higher the risk in debt funds. In addition, return on such debt funds may even fail to beat inflation.

5) One more major glitch of this fund, which many failed to notice, is the “Auto Transfer Facility.” In case you opted this transfer along with forgot to mention the date of transfer, then your entire corpus will be moved to Income Generation Scheme after 50 years of age. What if later on you postponed your retirement to 65 years? Your accumulated corpus will be in debt fund from 50 years of age, no matter how long your retirement age will be.

6) Liquidity is a big drawback of this fund. They charge you 1% exit load if you withdraw before 60 years of age. Will you be ready if your invested amount shows negative return and paying 1% exit load?

7) You have no control over the investment option. If you chose any diversified funds then you have control to exit at any point of time (if the fund is not performing well or you have an emergency). However, in this fund, you have no option but to continue or to pay 1% exit load and come out.

8) Re-balancing your corpus in this fund is pre-defined. You have no choice to switch.

9) I know it makes headlines with tags like Retirement, Pension, or Tax Benefit. However, think twice how the fund manager will perform. In addition, what are the risks in investing the NFOs. Why take risk in packaged product, which not have any historical data to validate. Instead, simply invest in funds, which are in the market since long with consistent performance. Tax benefit under Sec.80 C is not a big thing to complete with so many options already available.

10) This plan is better than NPS. However, as of now only a few volunteers invested in NPS. Rest of NPS contributors are from Govt Employees.

Therefore, the conclusion is “STAY AWAY” from this plan. The BEST PENSION PLAN not yet available in India. Hence, the answer is to accumulate your retirement corpus on your own. Never buy a product, which meant for retirement and offers you few tax benefits.

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37 Responses

  1. Hello Sir/Madam
    Now my age is 29. I think i will retire at age of 55.
    I want to plan my retirement and tax saving.
    What to do and in which fund i should invest.
    Please mail me at : biswa002@gmail.com

  2. Hi basu good morning.
    Really I appreciate this. Its good article. AtLast my doubts on pension plan were cleared. Thank you.

  3. Hi Sir,

    I have a surplus of 3 lacs lumpsum in my a/c which I am planning to invest in MF for 10- 12 years tenure towards my child education. Pls advise.

    I am investing 10000/- monthly in ppf.

    Thanks
    Neil G

      1. Hi Sir,

        Pls can you advise on the distribution percentage allocation of funds for the suggested plans.

        Thanks
        Neil G

              1. I also wish to invest in equity mutual funds for retirement / children education corpus. I am already 40 & though it may be late , I can invest with higher SIP.

                Pls advise suitable plans

  4. Good information sir. Can you suggest whether to go for SBI smart income protect. Actually i had already enrolled for this plan in the year 2013.

  5. Wonderfully explained article. I hope people pay attention before falling for words like ‘RETIREMENT’ or ‘PENSION’ etc.

      1. I have. In fact, coincidentally, I had a discussion with a friend of mine as she was looking into start investing in this scheme only. I tried to logic her out of it but she didn’t really agree. Yesterday, I shared this article with her and then she really understood the nuances. 🙂

    1. Hi Ketan,

      I would strongly advise against enrolling for any kind of Financial Management apps/sites. I can’t imagine sharing such sensitive details with anyone whom I don’t even know anything about. There is no benefit which will trump the RISK of sharing such details with a 3rd party.

      These apps/sites so not offer any advantage/feature which you can’t manage by yourself.

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