People who have retired in first two decades of this century are fortunate enougsh to have lifetime pension from their employer (central or state government employees, PSU employees, etc.). Hence, the need for retirement planning was not there for most of the people. Now, the situation is totally reversed, people who are going to retire in the next 4-5 decades will not have the prerequisite of lifetime pension from their employer.
The aspirations have also changed. Earlier, people wanted to spend their retirement at holy places or settle down with kids and taking care of their grandchildren. Now, people want to go for exotic vacations and pursue hobbies.
The life expectancy has also gone up. Life expectancy in India have gone up and is expected to go up further due to advancements in medical science. Life expectancy for India in the year 2000 was 62 years and in the year 2022 is 70 years.
So, beyond a doubt we can agree, that retirement planning is the need of the hour and with no social security, it’s important to plan for the retirement as early as possible.
One need to invest in tax efficient investment vehicles to plan for the retirement. Provident Fund can surely be one of the vehicles but it alone will not be able to accumulate enough corpus you can live on. As retirement is a long-term goal, one can plan it with a mix of equity and fixed income. The ratio of equity and fixed income will depend on the risk appetite of the investor.
HDFC Retirement Saving Fund check mark all boxes and gives three different choices for people with different risk appetite.
- Equity Plan
- Hybrid Equity Plan
- Hybrid Debt Plan
Let’s now discuss the features of this fund:
A- Long Lock-in Period: This fund imposes a decent lock-in to inculcate the habit of long-term investing. The lock-in period is of 5 years or till the time investor attains the age of 60 years (whichever is earlier). Similar to PPF and NPS, the long lock-in is a feature of all retirement solutions and should not be a deterrent for investment.
B- Notified Pension Fund: This fund is a notified pension fund as specified by the central government and hence investments in this scheme are eligible for tax benefits U/S 80C of the Income-Tax Act. Although tax deductions are available only up to INR 1.5 Lakhs but there is no upper limit to invest in this fund and one can plan the amount as per his retirement planning calculations.
Above two features “A” and “B” are common for all three plans (equity plan, hybrid equity plan and hybrid debt plan)
C- Asset Allocation:
HDFC AMC has launched three different variants of this solution to cater the need of investors with different risk appetite.
- Equity Plan
This plan is suitable for aggressive investors specially the ones who are less than 35-40 years of age and have a long way to go for their retirement. The equity component in this scheme can be anywhere between 80% to 100%. Remaining will be fixed income.
- Hybrid Equity Plan
This plan is suitable for investors with moderate risk profile specially the ones who are in the age bracket of 40 to 50 years of age and can still the investments decent time to compound and sail through market volatility. The equity component in this scheme can is similar to erstwhile balanced fund, i.e., between 65% to 80%. Rest of the portfolio is constructed across fixed income securities.
- Hybrid Debt Plan
This plan is offered for investors with low-risk appetite specially the ones who have already cross the age of 50 and are looking for stable returns with lower volatility. The equity component in this scheme is between 5% to 30%. Rest of the portfolio revolves around fixed income securities.
Below is the annualized trailing return performance comparison as on 28th Oct’2022:
|
HDFC Retirement Savings Fund |
1 Year |
3 Year |
5 Year |
|
Equity Plan |
6% |
23.9% |
14.8% |
|
Equity Hybrid Plan |
3% |
16.8% |
12% |
|
Debt Hybrid Plan |
4.2% |
8.8% |
7.3% |
