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Should one invest in mutual fund retirement schemes?

mutual funds retirement products..

Investment in pension plan is crucial in order to ensure continues flow of income during the retirement. Besides, investing in pension schemes and NPS, mutual funds too offers retirement plan.

Although mutual funds are not pension plans in strictest sense, one can use mutual fund as a retirement plan to save for retirement. Mutual funds differ from retirement plan in several ways. For example in mutual fund it is not mandatory to purchase annuity. Moreover, while reaching your retirement one can use the fund according to one’s own requirement.

Further in this article you will get to know how beneficial mutual fund retirement scheme is

Pension Plan from Insurance Companies

The pension plan offered by insurance company or national pension scheme provides accumulation phase along with distribution phase. Hence, while being in service the insured contribute to the pension scheme and the accumulated corpus is used to buy a retirement plan during the time of retirement.

However, there can be minor variations. The maturity period of retirement plan may or may not match with an individual retirement. At the time of retirement or maturity an individual is allowed to withdraw up to 1/3rd of the accumulated corpus as a lump-sum amount in retirement plan. The total sum amount withdrawn is tax exempted according to the income tax act.

Retirement Plan form Mutual Fund

The pension schemes offered by mutual fund are more or less similar like retirement plans offered by insurance companies. The accumulation process of retirement plan from mutual fund and retirement plan from insurance companies generally remains the same. Based on the fund options chosen by you the money is invested in equity or debt according to the market performance.

The distribution phase of noticeably different, under this phase the purchase of annuity is not mandatory. The investors can withdraw the whole amount according to their own requirement and wish. In order to receive a regular income an individual can also set up a systematic withdrawal plan (SWP). Moreover, the investors can redeem units as per required.

To help you know more about retirement plans from mutual funds. Here we have discussed some of the key features of pension scheme from mutual fund.

Features of Retirement Plans from Mutual Funds

1. The mutual funds retirement plan does not offer any concept of annuity. The investors can accumulate the savings using the pension scheme and after the retirement they can withdraw the money from the saving periodically.

2. However, making a closer to the retirement plan an individual can use the annuity savings to purchase a pension scheme. Retirement plans offered by mutual fund does not provide any compulsion to purchase a retirement plan at the time of retirement.

3. According to the choice of scheme chosen by an individual in retirement plan the sharing between equity and debt can vary.

4. The retirement plans from mutual fund are not that beneficial if the person starts withdrawal before retirement.

5. Under this plan there is no minimum contribution per year.

6. Through SIP the investors can invest a lump-sum amount retirement plans from mutual fund.

7. The various mutual fund retirement plans have different terms and conditions.

An individual can find value in retirement plans by mutual fund. These plans are more beneficial as compared to the pension schemes from insurance companies in various ways. Moreover, it is not mandatory to purchase annuity under these plans and on top of all it also provide the tax benefits to the investors. If you are planning for an early retirement then you should definitely go for retirement plans from mutual fund. 

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Stories by Archana Singh