Pension plans offered by Mutual Funds do not get as much of mention, compared to the other retirement planning solutions like PPF, Insurance Plans etc. This is surprising, since the 5 to 10 year investment returns from mutual fund pension plans are quite good. UTI Retirement Benefit Pension Fund was the first fund to be launched in this space in 1994, followed by Templeton India Pension Plan in 1997. After a gap of 15 years, Tata Mutual Fund came out with a retirement savings fund in November 2011. On a 5 year annualized basis, these plans have delivered returns of around 10%.
The funds from UTI and Templeton have around 40% of their assets allocated to equity, while the balance is invested in fixed income securities. The equity portion of both these schemes investment in both the schemes is concentrated in large-cap stocks in the equity portion, whereas the fixed income has more of corporate bonds and government securities.
The Tata scheme offers three options:
- Progressive plan in which the minimum equity investment of 85%
- Moderate plan in which the equity investment is around 75%
- Conservative plans offer equity exposure ranging from 0-65%
The scheme automatically switches from one plan to another depending on the investor’s age. At age of 45, investments under the progressive plan automatically switch to the moderate plan, while at the age of 60 investments in the moderate plan are switched to the conservative plan.
The chart below shows the 1, 3, 5 and 10 year annualized returns of the three comparable plans, UTI, Templeton and Tata (Moderate plan)
- UTI Retirement Benefit Pension Fund: This is one of the earliest schemes, launched in 1994 and has nearly Rs 990 crores assets under management. The expense ratio is only 2.12%. There is no entry load. An exit load of 5% is levied if the investor exits within one year, 3% if the exit is between one to three years and 1% thereafter, until retirement. Manish Joshi and V. Srivatsa are fund managers. The portfolio mix comprises 38% equity, 44% debt and 18% money market instruments.
- Templeton India Pension Plan: This scheme launched in 1999 has Rs 244 crores assets under management. It has an expense ratio of 2.45%. There is no entry load. An exit load of 3% is levied if the investor exits before retirement. Anand Radhakrishnan, Anil Prabhudas, Sachin Desai and Umesh Sharma are the fund managers. The portfolio mix is 36% equity, 50% debt and 14% money market instruments
- Tata Retirement Savings Plan: This is the newest scheme. It has Rs 38 crores, Rs 10 crores and Rs 1.9 crores assets under management for the progressive, moderate and conservative plan respectively. For entry and exit loads please refer to the offer documents. While the portfolio mix is heavily weighted towards equity at 89% in the aggressive plan, equity allocation is 77% in the moderate plan and only 19% in the conservative plan.