Two Mutual Funds-Tax Efficient (Sec. 80C) and Pension Plans in India !!!

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Lot of investors not aware about the fact that there are two mutual fund schemes from different companies which offers you the tax benefit of Sec. 80 C as well as treated as pension plans in India. So let us explore few details on these two.

These are the only two schemes notified by Govt as pension plans in mutual fund schemes. They are eligible for Sec. 80 C deduction and features as retirement product. Beauty of these two plans are tax efficiency and return (past performance).

1) Templeton India Pension Plan-This is a pension plan from Franklin Templeton India, a well known mutual fund company. This fund was started on 31st March 1997. So it is around 17 years old fund. This fund is actually a debt oriented balanced fund. Means maximum around 40% will be invested in Equity and rest in Debt products. Once you attain the age of 58 years then you have option to withdraw the accumulated amount in below manners.

  • Pension Option-Your amount will be invested as it is. But you will receive pension in the form of dividend. But depends on declaration of dividend.
  • Lump Sum Option-You are free to withdraw it all the accumulated amount without any penalty.
  • Combination Option-Under this, you have facility to withdraw lump sum, rest amount will be continued as invested and receive the dividend on that.
  • SWP (Systematic Withdrawal Plan)-Here you instruct mutual fund company to withdraw some fix amount or units at a specified frequency like monthly or quarterly.

For a detailed scheme information you can visit Templeton India Pension Plan link.

Load Structure-

Entry Load-Nil

Exit Load-3% if redeemed within 58 years of age.

How fund performed?

Templeton India Pension Fund Performance

(Source-Valueresearchonline, as on 31st May 2014)

2) UTI Retirement Benefit Pension Fund-This is a pension plan from UTI Mutual Fund, a well known and oldest fund house in India. It was launched in December 1994. So it is almost a 20 year old fund. This too is debt oriented balanced fund and the ratio of investment towards Equity: Debt is same as that of Templeton India Pension Plan. Here also retirement age is fixed as 58 years. But in this fund unlike few withdrawal options of Templeton India Pension plan, you have only option of SWP once you attain the age of 58 years.  For a details scheme information you can visit “UTI Retirement Benefit Pension Fund link.

Load Structure-

Entry Load-Nil

Exit Load-Less than a year-5%, One year to three years-3%, more than three years but less than five years-1% and more than five years-Nil.

How fund performed?

UTI Retirement Benefit Pension Fund Performance

(Source-Valueresearchonline, as on 31st May 2014)

So from above fund features, you notice that they have given around 11% return for 10 years period which is decent in it’s category. But how they are taxed??

Tax liability of investing in both the funds

  • While investing you will get the tax deduction under Sec 80 C of income tax limit. So a good option for higher tax bracket investors.
  • While withdrawal-Both funds are treated as Debt Funds. So you need to pay STCG (Short Term Capital Gain), if withdrawal within a year. Or LTCG (Long Term Capital Gain) if withdrawal after one year from investments.

STCG-Taxed at normal tax rates based on your income tax slab.

LTCG-20% with Indexation and 10% without Indexation, whichever is less.

Who can Invest?

People who are looking for accumulation of retirement corpus with tax deduction can definitely look for these funds. Both funds are debt funds. So investors who are bit risk averse can go for such funds. Both are old funds (more than 15 years). Also when you compare withdrawal taxation of typical pension plans to these funds, then these funds holds upper hand. Because in typical pension plans, whatever you receive will be taxed according to tax slab of an individual. But in these funds it will be around 10%. So for higher tax bracket individual, these plans seems better tax efficient. Also apart from typical ELSS (Equity Linked Saving Schemes), these are the only two schemes which entertain such tax benefit under Sec 80 C.

Unlike typical pension product like NPS, here in this plan you are free of withdrawal all accumulated amount at the time of retirement. Which makes these funds bit liquidity option than NPS. But do remember to have your eye on exit loads of both funds.

I am still confused why only two mutual fund companies offering these plans, why not others?? Any idea… Please share.

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