Retirement Funds

Best Retirement Funds

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What are Retirement Funds?

Retirement funds are mutual funds that aim to provide regular income after an investor attains the age of 55 or 60. Because these funds provide pensions to investors, they are also known as pension funds. Generally, the pension starts at age 55/60 and continues until the investor’s demise, after which the remaining corpus is transferred to the nominee. View More

Retirement mutual funds are typically open-ended and fall under the ‘Solution-Oriented’ category of mutual fund schemes. While pension funds typically invest in debt instruments, such as government securities, corporate bonds, money market instruments, and the like, some funds also invest in equity stocks and equity-related instruments. Debt instruments are relatively less volatile than equity stocks. In addition, retirement funds often come with a lock-in period, such as five years or until the planned retirement, before which you cannot withdraw your investment.

Investors can choose two modes to invest in retirement funds – SIP and Lump sum. SIP or Systematic Investment Plan is the most preferred option for investors since you can invest a small amount every month to create a massive retirement corpus.

What is the Purpose of Retirement Funds?

The actual purpose of the target retirement funds is that it will create a smooth source of income for investors when they do not have a proper income. These funds act as deferred pay, offering monetary security and proper capital to pay up for all the necessities. View More

The majority of the target retirement funds provide the option to obtain returns as a lump sum amount or as a monthly annuity. The monthly annuity gets paid for a fixed rate, and in certain situations, it includes inflation protection.

This is one of the greatest advantages for the investor who gets the return from the retirement fund, which is adjusted to present the denomination. The Lump sum payments, on the other hand, disburse the overall amount of the accumulated wealth to all the investors after they retire.

It also helps in allocating substantial monetary backing but also eliminates the standard source of the return from the monthly pension expenditures.

Who Should Invest in Retirement Funds?

Retirement mutual funds allow you to create a retirement corpus to get regular returns after attaining your retirement age. While getting a predefined amount every month is the norm, you can also choose to cash out your investment as a lump sum to fulfil your financial obligations. The mutual fund house carefully decides the monthly payout amount after factoring in the probable inflation at the time of maturity. View More

Any Indian citizen can invest in retirement funds through a portfolio manager like 5paisa. However, these funds are mostly preferred by the following categories of investors:

Investors looking for a steady income stream in the golden years of their life. As the cost of living will most likely increase, retirement funds let you plan accordingly.
First-time investors in their early twenties or thirties can choose these funds to invest part of their total investment corpus.
Any investor looking to diversify their investment
Any investor willing to get better post-tax returns than bank fixed deposits (FDs). However, you can get the maximum tax benefits if you stay invested in a debt-focused retirement fund for over three (3) years.
Any investor looking to beat market volatility like a professional. Unlike pure equity funds, debt funds usually invest in high-quality debt instruments and also equity and equity-related instruments. Hence, while the equity portion of your portfolio cares for the ‘returns’ component, the debt side offers stability.
Anyone with a desire to lead a worry-free life after retirement. You can use a retirement calculator to see how much it will cost when you become old before deciding how much to invest.

Different Types of Plans for Retirement

When it comes to the plans for the best retirement funds, you will come across many of them. Some of these are: View More

Public Provident Funds [PPF]

Even though PPF is not declared as a pension plan, it does serve the purpose of the pension plan only if it is managed properly. Since it’s a government-backed scheme, it will offer a sovereign guarantee to a person’s hard-earned money.

You can invest INR1,50,000 yearly in the PPF account. The money will keep on increasing with an outstanding interest rate. You can easily withdraw the whole amount after 15 years of tenure and get to purchase the pension plan from the PFRDA-recognised pension firms.

Senior Citizen Saving Scheme [SCSS]

This particular plan is ideal for individuals who are over the age of 60. Being the best retirement funds plan, people can invest up to INR 15 Lakhs. The amount will get directly credited into the bank account of an individual at the end of every quarter.


Taxability of Retirement Funds

The best retirement funds are more tax-efficient than many other investment options. Some retirement mutual funds allow you to claim a tax deduction of up to INR 1.5 lakh every financial year under Section 80CCC of the Income Tax Act. However, the income will be taxed as per your existing tax slab when the annuity starts. View More

Moreover, although premature withdrawals are challenging in retirement funds, if you still manage to withdraw your money, the following tax implications will apply:

If you withdraw the amount before one (1) year from the investment date in an equity retirement fund, you have to pay a Short-Term Capital Gains (STCG) tax of 15%+cess+surcharge. But, if you withdraw the amount after 1 year, the Long-Term Capital Gains (LTCG) rate of 10% will apply.
If your investment is in a debt retirement fund and you withdraw the amount before three (3) years from the investment date, you will have to pay taxes according to your income tax slab. But, if you withdraw after 3 years, the applicable rate will be 20% after indexation.

Risks Involved With Retirement Funds

While retirement funds are often considered the best investment instrument for assured retirement benefits, they do carry some risks. Here are the most common risks associated with pension funds: View More

Exit Load – If you want to withdraw your investment before the date mentioned in the scheme document, you will have to pay some exit load. This reduces the overall returns from the scheme.
Volatility – Mutual funds are by nature volatile. The volatility is a lot higher in equity funds than in debt funds. So, you must choose your portfolio wisely when investing.
Expense Ratio – Fund houses charge an expense fee, a.k.a. expense ratio, for managing your money. The expense fee might reduce the effective returns from your investment.
No Authority – Although professional fund managers manage retirement mutual funds, they are prone to market fluctuations. Moreover, since the fund manager manages the funds, you do not have direct control or authority over your funds until you withdraw it.
Over-Diversification – Sometimes, investors over diversify their investment or fail to figure out the right mix. Your profits will be less if the equity market outperforms the debt market when your portfolio has more weightage on debt.
Illiquidity – Some retirement funds do not allow withdrawals before attaining the age of retirement. This can pose a problem if you need money urgently.

Advantages of Retirement Fund

The following are the top advantages of retirement funds: View More

Flexibility – Unlike conventional retirement plans, pension mutual funds are extremely flexible. You can opt for annuity for life or even withdraw a lump sum to fulfil your capital-intensive obligations.
Tax Benefits – Some retirement funds provide tax benefits of up to INR 1.5 lakh under Section 80CCC of the Income Tax Act. Also, any long-term profits up to INR 1 lakh are exempt from taxes.
Professional Fund Management – Retirement funds are usually managed by expert fund managers with a keen understanding of the market. You can compare the rates of various retirement funds to choose the best one.
Transparency – Retirement mutual fund investments are transparent and fair. You can check the number of units allotted and the fund value simply by logging into your profile. Also, you can switch between equity and debt to maximise profits.
Easy Investment – Portfolio management platforms like 5paisa facilitate quick and convenient investment in best-performing mutual funds. You can browse the best pension funds and invest with a click.

How to Calculate the Amount You Would Need For Retirement?

When it comes to calculating the best income funds for retirees, individuals must consider multiple aspects, which include: View More

● The rate of return
● Inflation
● Life expectancy
● Possible retirement age
● Many more

For instance: “An individual in their 20s will have 20s to invest or save up funds for their retirement. When their yearly expense is INR 7,20,000, they will need a corpus of INR 54,80,857. Doing so will help maintain monetary stability right after retirement.”

One of the best online applications for mutual funds for retirement is the “Retirement Calculator.” The calculator will help determine the needed amount. To calculate the amount, you need to evaluate some factors, such as possible inflation rate, monthly expenditure, the person’s age, etc.
Besides that, the calculator will also display how much you get to save every month from reaching the targeted amount.


Pension funds or retirement funds can help individuals greatly after they retire from being a working professional. This retirement income fund will serve as a source of income for their later life. View More

There are so many retirement plans available in the market. Individuals can go through them and opt for the one that matches their needs. Besides that, it will be much better to calculate the amount to learn how much funds he/she will receive.

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