Reliance Retirement Fund – Equity Oriented Pension Scheme- Features & Review

Reliance Retirement Fund is one of the New Fund Offers which is open for subscription now. Reliance Mutual Fund has launched this open ended ‘Tax Savings’ cum ‘Pension Scheme’ on 22^nd January 2015. The NFO is open from 22^nd Jan to 5^th of February 2015.

‘Reliance’ – ‘Pension scheme’ – ‘Retirement Fund’ – ‘Notified Tax saving scheme’..these words/features are enough to catch many investors’ attention. Moreover, many investors do their tax planning during January to March period (which is not correct, tax planning should be done and implemented throughout the financial year).

I generally do not prefer to write reviews on individual mutual fund schemes. As mentioned above, this fund is grabbing the attention of many investors during its NFO period. I have received few queries like – Is Reliance retirement fund a good plan? Should I invest in Reliance pension fund to save tax?

Hence, I thought to write about the features, review and pros/cons of Reliance Retirement Fund.

Features of Reliance Retirement Fund (RRF):

• RRF 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.)
• Reliance MF claims that this is the first Notified Retirement Fund having Equity oriented scheme. (The fund has received permission from the central govt and has been notified as a pension fund under Section 80C(2)(xiv) of the Income Tax Act.)
• Reliance Retirement Fund offers two schemes with distinct investment portfolios.
  • Wealth Creation Scheme – This is equity oriented plan. In this plan, 65% to 100 % of the funds are invested Equity & Equity related instruments. The remaining 0 – 35% in debt and money market securities.
  • Income Generation Scheme – This is Debt oriented plan. 70 to 95% of the scheme’s funds are invested in debt and money market securities and 5 – 30% in equity/equity related instruments.
• Wealth Creation scheme is for Accumulation phase. (The phase in an investor’s life when he/she builds up his/her savings. )
• Income generation option is for the investors who are nearing their retirement (who cannot afford to take risk).
• The investors can switch between these two schemes without any limitation.
• Reliance Retirement Fund has a lock-in period of Five years.
• Exit load of 1% is applicable on redemption (sale of units) before the age of 60 years.
• The fund provides ‘Auto Transfer’ facility wherein investors’ entire investment (Lump sum/SIP) shall be switched automatically from Wealth Creation Plan to Income Generation Plan (with nil exit load) at any date as specified by the investor (which is within or after the lock-in period) or upon completion of 50 years of age.
• Lump sum, Systematic Investment Plan and Step-up modes are available. (Step-up option -A facility wherein an investor who has enrolled for SIP, has an option to increase the amount of the SIP Installment by a fixed amount at pre-defined intervals.)
• Systematic Withdrawal (manual or automatic) option is available to withdraw money during the investor’s retirement phase. (Auto SWP : This optional facility aims to provide a regular inflow of money to investors (monthly/quarterly/annual) by automatic redemption of units on or after 60 years of age.)
• Investments in Reliance Retirement 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.
• One interesting feature about this fund is, employers can sign up for this scheme. They can invest in Reliance Retirement Fund systematically by deducting the SIP amount from the employees salary.
• This mutual fund scheme has two plan – Growth & Dividend pay out options. Growth plan has again two sub-plans : i) Growth & ii) Bonus oriented.
• The minimum investment should be,
  • For Lump sum – Rs 5,000
  • For Monthly SIPs – Rs 500
  • Quarterly SIPs – Rs 1,500
  • Annual SIP – Rs 5,000

Should I Invest in Reliance Retirement Fund NFO?

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

• We have so many good mutual funds 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 switch-outs and redemptions before the attainment of 60 years of age. The reason could be, the fund manager wants to encourage the investors to stay invested for long term. But, I feel charging 1% on redemptions and that too up to 60 years of age is definitely not a good point.
• I believe this scheme is more like an ULIP (Unit Linked Insurance Plan) minus the risk coverage.
• Though the investments made under this plan has income tax exemptions, we know that Section 80C is already crowded with many investment options. If Government approves these funds for tax exemptions under other Sections (like the one offered to National Pension Scheme under Section 80 CCD, which is over & above Rs 1.5 lakh provided under section 80c), we could see good demand for these kind of pension plans.
• I personally do not believe in ‘Defined package’ ((i.e 65% of the fund’s money in equity and all) or ‘Defined Products’ (like  retirement fund or pension fund etc.,). If you are an young investor and planning for your retirement, you are better off investing in normal Equity mutual funds which can invest up-to 100% in equity related instruments. You can even consider investing in good Balanced funds for your retirement planning (if you are a bit conservative investor).
• 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.
• ‘The Income generation option’ is not suitable for young (in terms of age) investors .
• The nearest competitor for Mutual funds’ pension plans is NPS (National Pension Scheme). 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.

Both Franklin Templeton and UTI’s have already launched pension funds which invest up to 40% into equities and rest in debt and money market securities. But they are not pure equity oriented schemes.

Franklin India Pension Plan has given returns of around 13% (annualized) in last five years. UTI’s Retirement Benefit Pension Fund has generated returns of 10% in last 5 years.

Axis, SBI, HDFC and Pramerica Mutual Fund houses had also filed offer documents with SEBI to launch similar pension funds. So, we may soon see plethora of Retirement or pension oriented NFOs hitting the primary market.

I suggest you not to get carried away by words like ‘pension fund’ or ‘retirement fund.’ With little home work and research, you yourself can build a good portfolio of investments for your retirement. These investment options can be – your EPF (Employee Provident Fund), PPF (Public Provident Fund), Balanced Funds or Equity Mutual Funds with proven past performances. You may also consider investing in Top Equity Linked Savings Scheme offered by various Mutual Fund houses. ELSS funds offer both income tax benefits and generate decent positive returns over the long run.

Most investors (retail investors) move out of equity mutual funds within few years of investment. 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.)

Most of us generally think that lot of time is left for retirement planning. Do not think like that. Retirement planning should be your topmost priority. Based on your current expenses, retirement age, life expectancy and future inflation (during retirement/withdrawal phase) calculate your required retirement corpus. Once you know how much you need, work backwards to calculate how much do you need to save periodically till you retire.

Will you consider investing in Mutual fund pension or retirement schemes? Do you have retirement plan in place? Share your views and comments. Cheers!

Continue reading :

• Why you SHOULD think beyond TAX when investing?
• Retirement Planning – Calculations made easy!

(Image courtesy of hyena reality at FreeDigitalPhotos.net) (References : Reliance Retirement Fund Scheme Information document)