Mutual funds also offer various retirement plan alternatives, with one of the favored choices being the Hybrid Aggressive Retirement Fund. In my previous column, I emphasized the critical necessity for retirees to avoid the potential predicament of outlasting their financial resources, often referred to as the Chinese Curse. Now, let’s explore some viable options accessible to retirees to avert such a financial dilemma.
The government’s National Pension Scheme (NPS) is gaining popularity as a retirement planning avenue, though it may undergo further refinements. Despite its merits, the NPS is constrained in its capacity to provide an additional tax break.
In the realm of mutual funds, the Hybrid Aggressive Retirement Fund stands out. These funds typically come with a lock-in period of 5 years or until the investor reaches 58 years of age, whichever comes earlier. Let’s take a closer look at a few notable funds falling within this category.
The HDFC Retirement Savings Fund Hybrid Equity Plan, boasting an AUM of ₹1,140 crore, maintains a current asset allocation of 71% in equity, 17% in debt, and 12% in cash and cash equivalents. Investments in sectors such as Banks and Capital Goods characterize its equity portfolio, while debt investments include Government Securities and Corporate Securities. Over the past three and five years, this fund has recorded returns of 20% and 16%, respectively.
The ICICI Prudential Retirement Fund Hybrid Aggressive Plan, with an AUM of ₹218 crore, allocates 84% to equity and 16% to debt. Predominantly investing in the Metals and Automobiles industry for equity, and in Government Securities, Corporate Securities, and Deposits for debt, this fund has delivered returns of 19.4% over three years.
The Nippon India Retirement Fund Wealth Creation Scheme, managing an AUM of ₹2,554 crore, exhibits a current asset allocation of 98% in equity and 2% in cash and cash equivalents. Its equity portfolio is primarily composed of investments in Banks and Software. Over the past three and five years, the fund has delivered returns of 20.5% and 11.5%, respectively.
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Apart from mutual funds, retirees can explore the option of a Reverse Mortgage. This entails a bank or financial institution providing fixed monthly payments to the homeowner (usually a retiree) throughout their lifetime. Following the homeowner’s demise, legal heirs are presented with the option to repay the sum issued under the reverse mortgage with interest and take ownership of the property.
Another popular choice is investing in an Insurance Company’s Unit Linked Investment Plan (ULIP) in one’s late forties, allowing it ample time to mature despite the usual 5-year lock-in period. Even with the recent marginal tax levy, this remains a viable retirement option if a financial advisor adeptly balances debt and equity.
Yet another option, albeit less prevalent in India, is the Reverse Mortgage. Similar to the aforementioned scenario, it involves a bank or financial institution providing fixed monthly payments to the homeowner during their lifetime, with legal heirs having the option to repay the sum with interest and assume ownership after the homeowner’s passing.
In conclusion, retirees have a myriad of options at their disposal, provided they plan meticulously well in advance of their retirement.
