4 Must Know Things About Mutual Fund Retirement Plans
Author: Kundan Kishore
Like life insurance companies, some mutual funds also provide retirement plans which aim at helping investor save for their retirement. An investor wanting to consider them needs to know four important things about them. Here, we will discuss them briefly.
Multiple variants Retirement plans come in multiple variants in terms of their asset allocation such as equity oriented fund, debt oriented fund, and a hybrid fund which invests in both equity and debt.
Tax benefit Some retirement plan offer you tax benefit under Section 80C of the Income Tax Act which allow annual tax deductions of up to Rs 1.5 lakh. Apart from checking out the availability of Section 80C benefits, you need to be aware of the taxation of returns.
If you invest in equity-oriented or hybrid variants of these plans that invest at least 65% of their money in equities, your investment will be classified as an equity fund for tax purposes and consequently, any capital gains after staying invested for a year, will be tax free. For other variants, you will need to pay 20% long term capital gains tax on capital gains that have been adjusted for the impact of inflation through the facility of inflation indexation
Higher exit load Since retirement is a long term financial goal, in order to bring long term investment discipline among investors, these retirement plans come with a hefty exit load of 1-5%, depending on the investment tenure.
Flexibility in investment options Mutual fund retirement plans provide you with lump sum and systematic investment options (SIP). So, you can choose to invest in them according to your needs.
