HDFC Retirement Savings Fund – Tax Saving cum Pension Scheme – Details & Review

HDFC Fund house has launched a New Fund Offer (NFO) called HDFC Retirement Savings Fund on 5th February, 2016. It is an open-ended, tax savings and pension oriented mutual fund scheme. The NFO is open for subscription from 5th February to 19th February, 2016.

Around the same time last year, Reliance Fund house launched a similar retirement / pension scheme known as ‘Reliance Retirement Fund’. The returns generated by this fund is not up to the mark (though 1 year is a very short-term to measure a fund’s performance).

Reliance Retirement fund has two options – Wealth creation option (the equity oriented hybrid plan of the fund) and Income Generation option (the debt oriented plan of the fund). Both the options have under-performed in their respective fund categories.

HDFC Retirement Savings mutual fund will be managed by well-known and talented fund managers. They are Chirag Setalvad (who manages popular schemes like HDFC Mid-cap, HDFC Balanced & Children’s Gift funds), Shobhit Mehrotra (who manages mostly debt-oriented schemes) and Rakesh Vyas.

So, is HDFC Retirement Savings fund is a good option to invest for your retirement goal? Does it offer income tax benefits? What are its features, pros & cons? Let’s discuss..

HDFC Retirement Savings Fund Mutual Fund NFO pic

Key highlights of HDFC Retirement Savings Fund

  • HDFC Retirement Savings scheme is an open ended scheme (An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period.)
  • It offers three schemes / investment plans during accumulation phase with distinct investment portfolios as below;
    • HDFC Retirement Savings Fund – Equity Plan : This is an equity oriented plan. In this plan, 80% to 100 % of the funds are invested in Equity & Equity related instruments. The remaining 0 – 20% in debt and money market securities.
    • HDFC Retirement Savings Fund – Hybrid Equity plan : This is like an equity oriented balanced fund. In this option, 60% to 80 % of the funds are invested Equity & Equity related instruments. The remaining 20 to 40 % in debt and money market securities.
    • Hybrid Debt Plan : This is a Debt oriented plan. 70 to 95% of the scheme’s funds are invested in debt and money market securities and 5 to 30% in equity/equity related instruments.
  • Investments in HDFC Retirement Savings Fund are eligible for tax deductions up-to Rs 1.5 Lakh in a Financial Year, as per Section 80C of the Income Tax Act 1961. This is a Notified Pension Fund approved by the Central Board of Direct Taxes, Ministry of Finance.
  • In addition to tax deductions, investments in the Equity plan & Hybrid – Equity Plan will be treated as investments in equity oriented funds. The income earned (capital gains) at the time of redemption on these investments will be treated as long term capital gains which are exempt from income taxes. Any capital gains arising out of the Hybrid – Debt Plan at the time of redemption would be taxable as per the applicable tax rates and indexation benefits thereof. (Read : Mutual Funds & Tax Implications)
  • The minimum initial investment (purchase/switch-in) amount during the NFO period and on an ongoing basis would be Rs.5,000 and any amount thereafter.
  • Minors are not be eligible to invest in this fund.
  • Lock in Period : The fund has a lock-in period of 5 years from the date of allotment of units, during which the units cannot be redeemed or switched out.
  • Exit Load : Upon completion of the lock-in period of 5 years, the units can be redeemed with an exit load of 1% till the age of 60 for an investor. After completion of 60 years of age, the investor can redeem the units without any exit load. (If an investor invests say at the age of 58, the minimum lock-in period of 5 years is still applicable, but exit load will not be applicable as the redemptions are allowed after 5 years, by that time the investor’s age would be above 60 years.)
  • Switch : After completion of initial lock-in period of 5 years the investor can switch between different plans (three plans) of the fund without attracting any exit loads. Though the switches are treated as normal redemptions (subject to tax implications), there will not be any fresh lock-in period.
  • Withdrawal options : You have four options to redeem the accumulated fund units as below;
    • Lump sum option – you can withdraw the entire accumulated fund.
    • Switch option – You have the option to switch entire / part of units accumulated to any other Investment Plan within the scheme or else switch to any other open-ended schemes of HDFC Mutual Fund.
    • Systematic Withdrawal Advantage Plan (SWAP) Option – If you wish to receive a fixed amount monthly or at pre-specified intervals from the accumulated corpus, can opt for this option.
    • Systematic Transfer Plan (STP) – You can enroll for the STP and choose to Switch on a daily, weekly, monthly or quarterly basis from this Scheme to another Scheme of HDFC Mutual Fund, which is available for investment at that time.

My opinion on HDFC Retirement Savings Fund

My opinion and some of the important points to ponder over before investing in this retirement fund are as below;

  • It is better to avoid investing in New Fund Offers. We have so many good mutual funds (equity or debt) with proven track record which are available for investments. NFO schemes do not have past performance data. Some investors may have a misconception on NFO’s Net Asset Value (NAV). It is a common misconception that an existing fund’s whose NAV is around Rs 100 is more expensive and less profitable than a NFO at Rs 10. This is just a myth.
  • The fund charges 1% Exit load on redemptions before the attainment of 60 years of age.
  • ‘The Debt plan option’ is not suitable for young (in terms of age) investors.
  • We have three kind of pension plans – i) pension plans offered by Life insurance companies, ii) NPS (National Pension System) & iii) Pension or retirement funds offered by Mutual Funds. In terms of liquidity, transparency, flexibility and taxation point of view, equity oriented pension mutual funds like these do outscore both NPS & Life insurance pension plans. The maturity proceeds (or withdrawals) of NPS & insurance pension plans are taxable. Also, it is mandatory to re-invest the withdrawals (full or partial) in annuity products offered by life insurance companies. Even the annuity income from such plans is taxable.
  • If you are an young investor and planning for your retirement, you are better off investing in Best Equity mutual funds which can invest up-to 100% in equity related instruments. You may even consider investing in top Balanced funds with proven track record as one of the investment options for your retirement planning (if you are a middle aged individual).
  • In case if your investment objective is tax saving cum long-term wealth accumulation for your retirement, you can consider other investment options like Equity linked tax savings schemes and/or Provident Funds.
  • When you are planning for your long term goals like ‘retirement’, you should have the flexibility and control on the way you chose various asset classes. Sometimes it is prudent to avoid ‘defined products’ like retirement fund or pension scheme etc., You should have a fair mix of conservative & aggressive investment options in your portfolio.

Most of the investors (retail investors) move out of the equity mutual funds within few years of investment. Do not withdraw the accumulated funds meant for building your retirement corpus. Staying invested and periodically reviewing your retirement plan has proven to be best ways of creating long term wealth (which can generate inflation protected retirement income).

Will you consider investing in pensions schemes like HDFC Retirement Savings Fund? Do you have your retirement plan in place? Kindly share your views and comments.

(Image courtesy of Mister GC at (Kindly note that is not associated with HDFC Mutual Fund and this is NOT a sponsored post.)

  • amit rishi says:

    hello sir I am amit from punjab. i want to invest 10000 per month in hdfc retirement saving equity fund for 15 to 20 years can you suggest me its good for me or not? what will be average return after 20 years.

  • kunal says:

    Hi Dear ,

    Thank you for your valuable information ,
    i am 30 year old , dont have any life insurance policy , planning to buy one with hdfc after reading your post .
    Plus i am planning to do SIP on my own ,

    Funds i have selected are Hdfc balanced direct growth / tata balanced direct growth ( 10000 rupees for 5 year ) which one should i go for , should i break it down 5000 / 5000 or choose one . do i need a demat account , or buy it from mfutility as you suggested . income is 60000 per month .

    Am planning to buy a house after 3-4 years .
    Should i do value investing or keep amount fixed of 5000 rupees ?

  • nk barik says:

    Dear sriikant,
    i want to invest in elss fund for my retirement,is it good plz guide me

  • Anand patel says:

    Hi, sreekanth
    Your all articles are very nice, come to know about very much about mutual fund.
    I am a 30 yr old earning 75k/month.
    having Insurence of approx 17 lakhs ( for that i am paying premium of approx 11k/month)
    having sip of 2000 of HDFC prudence fund started since last 4 month (Horizon 7-10 years)
    planning to buy a new Home after 4-5 year.
    suggest me how to plan for short term and long term investment.
    how about the axis long term equity fund(ELSS) to invest for retirement purpose

    • Dear Anand,
      If possible, kindly share more details about your existing life insurance policies (plan name, commencement date & tenure).
      You may invest in ELSS fund (Axis) provided your investment objective is to save taxes + long-term goal (retirement).
      For a medium term goal (home purchase) – Suggest you to invest in RDs + MF MIP + HDFC Prudence fund.
      Read :
      List of best investment options.

      • Anand patel says:

        Thanks for your advise, i will surely consider it.
        I have 7 LICs New Jeevan Anand policies with sum assured of 20 lakhs started since 6months with tenure of 30 years (like retirement plan).
        Other than HDFC Prudence fund (SIP of 2000), i am planning to start two SIP of 1.5K each for 15 years.
        suggest me good funds in diversified equity n midcap.
        Funds in my mind are UTI MNC, Franklin High Growth Companies..

  • Sreedhar says:

    Thanks Srikanth … Really nice and thoughtful information ….

  • sandeep says:

    HI Sreekanth,

    Thanks for valuable info.

    I got mail regarding invest in “Birla Sun Life Emerging Leaders Fund – Series 7”.
    Could you please suggest is it good to invest.

    • Dear Sandeep..It is a New Fund Offer (NFO), which is an Mid-cap equity oriented & Close ended fund. You may avoid investing in it.
      Read : Best Mid-cap funds 2016.

      • sandeep says:

        Thanks Sreekanth

        • sandeep says:

          Hi Sreekanth,

          I am investing below MF as SIP from last 1 year each one is 2000 per month.
          Could you please suggest is it okay to continue or better to change other MF.

          Birla sun life manufacturing equity fund
          Birla sun life mnc fund
          Birla sun life tax plan

          • Dear sandeep,
            Birla Manufacturing fund is a Sector oriented Multi cap fund. If you understand business cycle & the risks associated with ‘Manufacturing’ sector, you may stay invested in this fund, else it is better to avoid it.
            Birla Tax plan is a good ELSS fund.
            There are better funds than Birla MNC fund.
            Kindly let me know your investment horizon??

          • sandeep says:

            Hi Sreekanth,

            Thanks for your reply.
            I am investing for better earning for next 5 to 10 years.
            I am 32 years old. I am married and i have baby girl 8months old.
            My monthly income is 50k.
            Suggest better MF. I can invest 15k per month.

          • sandeep says:

            I have other query on Birla sun life MNC fund.

            I have invested lumpsum amount of 10k @ 591 and 10k @571.
            Now it is @529. Suggest me is it good to invest some more amount in this fund to average my actual investment.


          • Dear Sandeep,
            In place of Birla MNC fund, you may consider investing in a Balanced fund like HDFC / TATA balanced fund for next 5 to 7 years.
            Let me know if you have adequate life insurance & health insurance cover?
            Kindly read:
            Retirement planning in 3 easy steps.
            Kid’s Education goal planning.

          • sandeep says:

            Hi Sreekanth,

            Thanks for your reply,

            Actually 2 years back i don’t have knowledge on term insurance. So i have taken life insurance plan. I am paying 80 thousands premium per year. My wife don’t have life insurance and term insurance. I wanted to take icici iprotect term insurance for my wife (1cr life cover).

            Suggest is this term insurance good for my wife.
            For my child suggest any good term insurance.

          • Dear Sandeep,
            You may share your existing life insurance policies details (Plan name, term & commencement date).
            Is your wife an earning member of your family?
            Kindly note that kids do not require any life insurance cover.

            Read : Top Term insurance plans.

          • sandeep says:

            Hi Sreekant,

            My wife is not an earning member.
            My existing policy details.
            I have two Jeevan anand policies.
            1) Premium – 14220, Term – 16, Sum – 2Lacs, comm date – 15/10/2011
            2) Premium – 64454, There are 18 bonds for this. Each Sum – 1Lac, comm date – 28/12/2013.

          • sandeep says:

            Hi Sreekant,

            My wife is not an earning family member.
            She is a housewife.

            I have 2 Jeevan Ananad policies.
            1) Premium – 14220, Term – 16, Sum Assr – 2Lacs, comm dt – 15/10/2011

            2) There are 18 bonds in this policy.
            Total Premium – 64454, Term -> 21 years to 38 years, Sum Assr – each is 1 lac, comm dt – 28/12/2013.

          • Dear Sandeep,
            Then you wife does not require any life insurance in her name. You can buy a health cover for the entire family.
            Kindly read:
            Best portal for comparing health insurance plans.
            Family Floater health insurance plans.
            You may buy a Term plan with adequate cover. Once you get the term policy bond, you may discontinue the above two policies.
            Kindly read:
            Best Online Term insurance policies.
            Term insurance Vs Traditional plans
            How to get rid off unwanted life insurance policies?

  • SHIVKUMAR says:

    Myself shivkumar working in BSNL .
    last year i taken APY (atal pension yojana), i just seen the NPS from HDFC ,

    MY QUESTION is can i take NPS from HDFC . as i already taken APY.

    PL suggest..

  • Sampath says:

    Hi Sreekanth, Very nice blog. I am 40 years old and would want to start planning for pension. I wanted to invest in this NFO however got to know that it is not for 40 years old. Kindly let me know suitable pension options available for me. My investment capacity per year is around 1 lac for another 10 years or max 15 years.

  • prasanna says:

    hii. srikant sir…!!!
    most experts are against investing during Q is that who invest in NFO???

    • Dear prasanna,
      Most of the times NFOs are aggressively marketed. Some investors do have a myth that NFOs are available at Rs 10 NAV, so they are cheap and can make profits easily. Some do invest in NFOs with a hope that the fund manager (if he/she has a good track record) can deliver the expected performance.

  • Govindarajan says:

    What would be the approximate return any good balanced fund, if I invest around 10 lack and leave it as such for 14 years.

  • Govindarajan says:

    After 5 yrs redemption oh hybrid funds are not taxable, am I correct. And the new fund offer is similar to nps scheme, I think so.

    • Dear Govindarajan,
      If hybrid fund is equity oriented plan then the redemptions are not taxable after 5 years. It is similar but the tax implications are different.
      From taxation point of view, Equity oriented Pension funds outscore NPS. You can withdraw only 60% of the accumulated corpus under NPS, 40% of the remaining fund should be compulsorily invested in Annuity schemes after attaining 60 years. There is no such restriction in case of Equity oriented pension funds. The amount withdrawn (60%) and Annuity income (40%) under NPS are fully taxable. LTCG tax (Long Term Capital Gains) on redemption of equity oriented MF schemes is tax free.

  • Rajeshwar Reddy says:

    Yes Mr Nagaraj, There is no harm in investing some amount in this fund. The corpus accumulated can be a small part of retirement kitty. A good fund house & a good fund manager can be an asset to the fund.In 10 yr the same fund manager managed funds have given decent returns.

  • Prakash says:

    I agree with views expressed by Author. It will be better to invest in balance fund(equity),diversified / multi capfunds,Large cap fund instead of HDFC Ret. Fund which has no track record. Further Reliance Ret. Fund is Not doing well.Regarding fund managers views have not been made available. HDFC euity,top 200 performance will also be viewed in totality.

    • Nagaraj Havakkanavar says:

      It’s very funny when people tell the fund doesn’t have track record. Do you mean the funds with great track record will repeat the performance as done in past?

      No fund is good or bad. It depends upon the investors profile.

      I don’t see anything wrong with this fund as the scheme is going to be managed by very talented Fund Manager who have good track record of managing the investors money.

      Anyone with long term horizon and retirement as a goal can lock in his money in this.

      • Dear Nagaraj,
        Thank you for sharing your views.
        Let’s take a scenario;
        If we have HDFC Balanced fund (managed by same fund manager) with proven track record, and other side a NFO like this, then obviously it is prudent to go with the balanced fund right??
        We atleast have a track record to analyze though the the past returns may or may not be repeated.
        In case of the NFO, besides no track-record data, the future returns may or may not be good.

        • Nagaraj Havakkanavar says:

          Dear Sreekanth,

          I personally feel we should go by the mandate of the fund and review regularly whether it’s being managed in the way it was designed.

          Also, comparing this fund with Reliance Retirement fund which was launched a year back is incorrect. Also saying that RRF has not performed as expected is also incorrect. One year is a very short period to review the fund and also the Nifty is negative by 14.95% whereas RRF has fallen by 6.9% from the date of inception ie., 13th Feb 2015. Still you feel that RRf has done bad???

          Retirement/pension fund of any company is good for young investors and also for long term investors who are seriously looking for creating their retirement corpus.

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