Top Retirement Mutual Funds in India 2024
As the working population aims to secure their financial future and maintain a comfortable lifestyle post-retirement, the importance of investing in retirement funds in mutual funds shouldn’t be overstated. Therefore, in this blog, we will discuss some of the best mutual funds for retirement that you can consider investing in 2024.
What are Retirement Mutual Funds?
Retirement mutual funds, also known as pension funds, are investment schemes that allow an individual to save a specified portion of their income towards retirement. The main purpose of these funds is to provide a steady income stream during retirement; a retiree receives an annuity on their investment until their demise.
Pension funds are generally low-risk investment plans offering up to 11% interest, depending on the policy. These funds usually have a 5-year lock-in period or until retirement, whichever is earlier.
List of Best Mutual Funds for Retirement in India 2024
Here is a list of top retirement mutual funds that you can invest in 2024.
| Fund Name | AUM (in cr) | Expense Ratio | 5Y CAGR |
|---|---|---|---|
| ICICI Pru Retirement Fund-Pure Equity Plan | ₹649.09 | 0.64 | 23.70 |
| HDFC Retirement Savings Fund-Equity Plan | ₹4,830.28 | 0.68 | 23.43 |
| ICICI Pru Retirement Fund-Hybrid Aggressive Plan | ₹366.59 | 0.66 | 18.78 |
| HDFC Retirement Savings Fund-Hybrid-Equity Plan | ₹1,352.06 | 0.94 | 17.41 |
| Tata Retirement Sav Fund - Prog Plan | ₹1,749.88 | 0.59 | 16.65 |
| Tata Retirement Sav Fund - Mod Plan | ₹1,918.01 | 0.63 | 15.15 |
| Nippon India Retirement Fund-Wealth Creation | ₹3,003.63 | 1.04 | 15.14 |
| Aditya Birla SL Retirement Fund-30 | ₹356.14 | 1.04 | 13.13 |
| ICICI Pru Retirement Fund-Hybrid Cons Plan | ₹107.92 | 0.99 | 11.90 |
| Franklin India Pension Plan | ₹503.50 | 1.52 | 10.04 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data on the top retirement mutual fund in India is from 7th May 2024. However, for real-time updates visit the smallcase stocks collection today!
Top 10 Retirement Mutual Funds: Overview
Let’s look at the top 10 retirement funds in mutual funds in India.
ICICI Pru Retirement Fund-Pure Equity Plan
ICICI Prudential Retirement Fund is a Solution-Oriented Retirement mutual fund scheme from ICICI Prudential Mutual Fund. This fund was launched in February 2019 and is a medium-sized fund in its category. Thus, the scheme has an expense ratio of 0.64% with an AUM of Rs. 649 cr as of May 7th, 2024.
HDFC Retirement Savings Fund-Equity Plan
HDFC Retirement Savings Fund-Equity Plan is a Retirement Solutions mutual fund scheme from HDFC Mutual Fund. This is the 3rd oldest Retirement Solutions fund. HDFC Retirement Savings Fund-Equity Plan was launched in February 2016. Thus, the scheme has an expense ratio of 0.68% with an AUM of Rs. 4,830 cr as of May 7th 2024.
ICICI Pru Retirement Fund-Hybrid Aggressive Plan
ICICI Pru Retirement Fund-Hybrid Aggressive Plan is a solution-oriented retirement scheme launched by ICICI Mutual Fund. The scheme was made available to investors in October 1993 and is rated Moderately High Risk. Thus, the scheme has an expense ratio of 0.66% with an AUM of Rs. 366 cr. as of May 7th, 2024.
HDFC Retirement Savings Fund-Hybrid-Equity Plan
HDFC Retirement Savings Fund-Hybrid-Equity Plan is a Solution-Oriented Retirement mutual fund launched by HDFC Mutual Fund. The scheme was made available to investors in December 1999 and is rated Very High Risk. However, the fund has an AUM of Rs. 1,352 cr. with an expense ratio of 0.66% as of May 7th, 2024.
Tata Retirement Sav Fund – Prog Plan
The Tata Retirement Savings Fund Progressive Plan is a solution-oriented retirement mutual fund launched by Tata Mutual Fund. The scheme was made available to investors in June 1995 and is rated Very High risk. However, the fund has an AUM of Rs. 1,749 cr. with an expense ratio of 0.59% as of May 7th, 2024.
Tata Retirement Sav Fund – Mod Plan
The Tata Retirement Savings Fund Moderate Plan Direct Growth is a solution-oriented retirement fund launched by Tata Mutual Fund. The scheme was introduced in June 1995 and is rated Very High risk. However, the fund has an AUM of Rs. 1,918 cr. with an expense ratio of 0.63% as of May 7th, 2024.
Nippon India Retirement Fund-Wealth Creation
The Nippon India Retirement Fund-Wealth Creation is a solution-oriented retirement fund launched by Nippon India Mutual Fund. The scheme was introduced in June 1995 and is rated Very High risk. However, the fund has an AUM of Rs. 3,003 cr. with an expense ratio of 1.04% as of May 7th, 2024.
Aditya Birla SL Retirement Fund-30
The Aditya Birla Sun Life Retirement Fund- 30s Plan Direct Growth is a Solution-Oriented Retirement mutual fund launched by Aditya Birla Sun Life Mutual Fund. The scheme was introduced in December 1994 and is rated Moderately High risk. However, the fund has an AUM of Rs. 356 cr with an expense ratio of 1.04% as of May 7th, 2024.
ICICI Pru Retirement Fund-Hybrid Cons Plan
The ICICI Prudential Retirement Fund Hybrid Conservative Plan is a solution-oriented retirement mutual fund launched by ICICI Mutual Fund. The scheme was made available to the investors in October 1993 and is rated Moderately High risk. However, the fund has an AUM of Rs. 57 cr with an expense ratio of 1.09% as of May 7th, 2024.
Franklin India Pension Plan
The Franklin India Pension is a solution-oriented retirement mutual fund launched by Franklin Templeton Mutual Fund. The scheme was made available to the investors in February 1996 and is rated Moderately High risk. However, the fund has an AUM of Rs. 503 cr with an expense ratio of 1.52% as of May 7th, 2024.
What are the Types of Retirement Mutual Funds?
There are primarily four types of pension funds that one can choose from:
- Large-cap Fund: A large-cap fund is a mutual fund that invests in stocks of large-cap companies. Large-cap companies are typically well-established with high market capitalization. These funds prioritise stability and long-term growth by concentrating on established companies known for their lower volatility.
- Mid-cap Fund: A mid-cap fund is a mutual fund that invests in stocks of mid-cap companies. As the name suggests, these companies fall between large and small companies. These funds can maintain the balance between growth potential and risk with moderate market capitalisations.
- Debt Funds: These funds invest in fixed-income securities like bonds and can offer better post-tax returns than traditional FDs over three years.
- Balanced Fund: A balanced fund, or hybrid fund, is a mutual fund that combines both stocks and bonds in its portfolio. Its primary objective is to offer investors a combination of income and capital growth, making it suitable for investors seeking a moderate level of risk and return.
Features of Retirement Mutual Funds
Here are some of the significant features of retirement funds in mutual funds.
- Long-Term Horizon: The retirement mutual funds have a lock-in period of 5 years, which is higher than the ELSS lock-in period of 3 years. The best mutual fund for pension plan may prove to be beneficial due to the power of compounding, and investors can be financially stable even in their golden years.
- Liquidity: The mutual funds good for retirement usually have low liquidity due to charges and substantial exit fees applied during early withdrawals.
- Risk Profiles: Funds are available in different risk profiles, ranging from conservative (income-focused) to aggressive (growth-oriented), to accommodate varying levels of risk tolerance.
- Diversification: The best mutual fund for retirement planning provides diversification as it includes stocks, bonds, and other asset classes, thereby mitigating overall risk.
Who Should Invest in Retirement Mutual Funds?
Investing in the best mutual funds for retirement isn’t limited to investors who are in their 50s or 60s. Retirement mutual funds cater to a diverse range of investors, which are as follows:
- Long-Term Investors: Investors who invest for a long period of time and reap the benefits of compounding.
- Investors Seeking Portfolio Diversification: Those who want to diversify their portfolio to mitigate risks.
- Investors with Retirement Goals: Individuals who have retirement aspirations and seek expert investment management.
Factors to Consider Before Investing in Retirement Funds in Mutual Funds
Here is a list of factors to consider before investing in pension funds:
- Investment Goals: Associating investments with specific financial objectives, such as retirement planning, not only instils discipline but also provides investors with a sense of purpose.
- Risk Tolerance: Evaluate your comfort level with risk to determine the suitable mix of assets, ranging from conservative to aggressive.
- Asset Allocation: Select a retirement fund that matches your risk tolerance and time horizon, ensuring a balanced mix of stocks, bonds, and other investments.
- Portfolio Diversification: Confirm the fund’s diversification strategy and whether it aligns with your risk management objectives.
- Performance History: Evaluate the retirement mutual fund’s past performance to understand how the fund has performed earlier. Please keep in mind that past results do not guarantee future outcomes.
What is the Mode of Investing?
There are primarily two ways of investing in the top-rated mutual funds for retirement that are mentioned below:
- Lumpsum Investment: Lumpsum or one-time investment is one way of investing where the investors invest the full amount in one go. This method is usually followed by investors who have a healthy amount of cash in hand. With the smallcase Lumpsum calculator, investors can easily get a brief idea of the amount by entering the specific details.
- SIP: A mutual fund Systematic Investment Plan (SIP) is a disciplined way to plan your retirement. One can easily do the best SIP for retirement by investing a specific amount every month for the set time horizon. Additionally, one can seamlessly calculate returns with a smallcase SIP calculator.
Risks Involved While Investing in Retirement Funds in Mutual Funds
Let’s look at the potential risks of investing even in the best pension plan in a mutual fund.
- Tax Exemption: Apart from Equity Linked Savings Schemes, no other mutual funds are eligible for tax exemption under Section 80C of the Income Tax Act, 1961. Therefore, retirement mutual funds may not be suitable for investors seeking tax exemption under Section 80C of the Income Tax Act, 1961.
- High Volatility: Equity mutual funds are characterised by high volatility, making them unsuitable for investors who are not comfortable with or do not understand such fluctuations. Therefore, for these investors, traditional retirement schemes offering stable and fixed income are more suitable options.
- Illiquidity: Certain retirement funds restrict withdrawals until reaching retirement age, which could be challenging if funds are urgently required.
Benefits of Investing in Retirement Mutual Funds
Since we’ve covered the potential risks, let’s look at the significant advantages of investing in retirement funds in mutual funds.
- Flexibility: Unlike traditional retirement plans, pension mutual funds are flexible. Investors have the option to select a lifetime annuity or withdraw a lump sum to meet their financial commitments.
- Tax Advantages: Certain retirement funds offer tax benefits of up to Rs. 1.5 lakh under Section 80CCC of the Income Tax Act. Moreover, any long-term gains up to Rs.1 lakh are tax-exempt.
- Fund Management: Good retirement mutual funds are typically managed by skilled fund managers who understand the market well. Comparing the rates of different retirement funds allows you to identify the most suitable option.
- Transparency: Mutual fund companies are required to disclose all scheme-related information regularly. Thus, this helps investors to monitor the mutual fund portfolio, its performance, and market value periodically.
- Protection Against Inflation: Many retirement funds in mutual funds protect against inflation by allowing investors to withdraw a portion of their accumulated corpus after retirement, typically one-third. Thus, the remaining investment is allocated towards a monthly annuity for the investor, enabling them to maintain their funds invested and receive returns through periodic withdrawals.
How to Calculate the Amount You Would Need for Retirement Planning?
When calculating a retirement fund, individuals must consider various factors such as their anticipated retirement age, life expectancy, inflation rate, and expected rate of return. For instance, an individual in their 30s will typically have around 30 years to save or invest for retirement. If their annual expenses amount to Rs. 7,20,000, they would need a retirement corpus of Rs. 54,80,824 (factoring in a 7.00% annual inflation rate) to ensure financial stability post-retirement.
Thus, utilising tools that are based on retirement planning can simplify this process by helping individuals determine the necessary retirement savings.
Taxation on Retirement Mutual Funds as per the Union Budget 2024-25
The taxation on capital gains from your mutual fund investments is based on their holding periods and asset allocation. A few revisions were made to the tax rates, depending on their types, in the Union Budget 2024-25. It may be important to learn about these revisions when considering retirement mutual funds. These changes include:
Equity Mutual Funds
- Short-Term Capital Gains (STCG): The gains from equity mutual funds held for less than 12 months are now taxed at 20%. This is an increase from the previous tax rate of 15%.
- Long-Term Capital Gains (LTCG): For equity mutual funds held for over a period of over 12 months, gains are classified as long-term capital gains. The new budget introduces these key changes to the LTCG:
- Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
- Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
- Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.
Indexation was a method that allowed investors to adjust the purchase price of assets for inflation. This adjustment reduced taxable profits when selling assets like property or gold. Previously, these long-term capital gains were taxed at 20%. The new rule imposes a flat 12.5% tax on all long-term capital gains but eliminates any indexation benefits.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
Debt Mutual Funds
- Short-Term Capital Gains (STCG): If you sell your debt fund units within a period of 36 months, the gains are classified as short-term capital gains. The STCG will be taxed according to your income tax slab rate.
- Long-Term Capital Gains (LTCG): For debt funds held for a period over 36 months, the gains are classified as long-term capital gains. The new budget outlines a few changes on the LTCG for debt funds, including:
- Tax Rate: A flat 12.5% tax rate applies to these gains.
- No Indexation Benefit: The previous benefit of adjusting the purchase price for inflation is removed. Now, the entire gain after three years is taxable at 12.5%.
- Change in Holding Period for Specified Mutual Funds: Previously, debt mutual funds with a holding period of over 36 months were taxed based on the investor’s tax slab, classified as Long-Term Capital Gains (LTCG). Now, for specified mutual funds where over 65% of the investment is in debt, the holding period for taxation has been reduced to over 24 months. These funds will still be taxed according to the investor’s tax slab as either LTCG or STCG.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 36 months | Taxed according to your income tax slab | Taxed according to your income tax slab |
| Long-Term Capital Gains (LTCG) | More than 36 months | 10% | 12.50% |
Hybrid Mutual Funds
Short-Term Capital Gains (STCG)
The tax on short-term capital gains depends on the fund’s asset allocation when it comes to hybrid mutual funds. Here is a breakdown of STCG tax rates according to their asset allocation in hybrid funds:
- Equity-Oriented Hybrid Funds (more than 65% in equity): The gains from units sold within 12 months are taxed at 20%.
- Debt-Oriented Hybrid Funds (less than 65% in equity): The gains from units sold within three years are taxed according to your income tax slab.
Long-Term Capital Gains (LTCG)
The capital gains tax on hybrid mutual funds that extend the specified period (12 or 36 months) is known as the long-term capital gain tax. The tax treatment under this condition is as follows:
- Equity-Oriented Hybrid Funds: The gains from units held for over a period of 12 months are taxed at 12.5%. The gains up to Rs. 1.25 lakh are tax-free.
- Debt-Oriented Hybrid Funds: The gains from units held for over a period of 36 months are taxed at 12.5% without indexation benefits. This means the entire gain is taxed at this rate, without adjustment for inflation.
| Type of Hybrid Fund | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Indexation Benefit |
| Equity-Oriented Hybrid Funds | 20% for holdings less than 1 year | 12.5% for holdings over 1 year, with gains up to Rs. 1.25 lakh tax-free | Not available |
| Debt-Oriented Hybrid Funds | Taxed as per income tax slab for holdings less than 3 years | 12.5% for holdings over 3 years | Not available |
Note: Mutual fund schemes where neither the equity nor debt orientation exceeds 65% will now be classified as long-term investments after 24 months. The previous holding period for these funds was 36 months. These will be taxed at the revised LTCG tax rate of 12.5%.
To Wrap It Up…
In conclusion, retirement mutual funds offer a practical way to save for the future. By understanding how these funds work and their tax implications, individuals can make informed decisions about their retirement savings. Planning for retirement is a crucial aspect of financial well-being, and retirement funds in mutual funds provide a structured and tax-efficient way to build a corpus for the golden years ahead.
As always, it is important to do your own research and/or consult a financial advisor before investing.
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Frequently Asked Questions(FAQs) on Retirement Mutual Funds
To mitigate volatility and risk, retirement funds in mutual funds commonly allocate investments across both stocks and debt assets. As participants approach retirement age, the fund progressively adjusts its asset allocation towards a more conservative profile, prioritising capital preservation.
Ideally, one should stay invested in top-rated mutual funds for retirement for 5+ years since the lock-in period is usually 5 years. Investing for a longer period can mitigate risks and ride out fluctuations to achieve favourable returns.
As per the fund’s rules and regulations, one can transfer between different retirement funds offered by the same mutual fund company or across different fund houses.
One should start investing in mutual funds good for retirement as soon as possible. The early you start, the more money you will have during retirement. Keep in mind that the optimum investment horizon should be at least five years.
If an individual starts investing early, one can achieve their financial goals with the help of the best retirement SIP plan. SIPs are cost-effective as they allow allocating a specific amount every month for investments.
