Pension funds, also known as Retirement funds, are investment options that allow an individual to save a certain portion of their income for their retirement. These funds offer a regular source of finance after one retires; a retiree receives annuity on their investment until their demise.
Pension funds are invested on the investor’s behalf, and the income generated from that investment is contributed as the interest provided on the pool of funds. These offer a fixed benefit, as it does not depend on asset return and market fluctuations.
Retirement mutual fund plans usually invest in low risk investment options, like Government-securities, to ensure steady returns. Pension funds usually offer up to 11% interest depending on the policy and investments, making them best suited for retirement planning than any of the alternatives.
Who Should Invest In A Retirement Fund?
Pension plans offer a source of finance to pay for everyday necessities as well as any unforeseen circumstances. These mutual fund retirement plans carry much less risk than other forms of investments, making them ideal to secure assured returns for senior citizens.
Moreover, an investor can choose from several different types of pension funds available in India, allowing them to plan according to their unique financial needs.
There are primarily 3 different plans one can choose from. The most popular plan solely invests in debt profiles, making them extremely safe and ideal for a conservative borrower. There are also plans that are unit-linked, investing in both equity, and debt profiles equally. These present slightly higher risk, however, offer higher returns as well.
On the other hand, investors can also opt for National Pension Schemes, Government-backed retirement funds. This scheme allows investment in both debt and equity market according to an investor’s preference; one can also withdraw 60% of the total fund at the time of retirement and utilise the remaining 40% as annuity payment. The maturity amount is tax-free.