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Pranab Jyoti Gogoi/Mint
Pranab Jyoti Gogoi/Mint

Product Crack: HDFC Retirement Savings Fund

Under the retirement scheme, you have three plans to choose from: an equity plan, a hybrid equity plan and a hybrid debt plan

With mutual funds now allowed to launch pension-based schemes that aim to help you save for retirement and which also qualify to give tax deduction benefits under section 80C of the Income-tax Act, 1961, HDFC Asset Management Co. Ltd has launched a new scheme.

WHAT IS IT?

Under the retirement scheme, you have three plans to choose from: an equity plan, a hybrid equity plan and a hybrid debt plan. The equity plan is a full fledged equity scheme that will invest up to 100% in equity. The hybrid-equity plan will invest 60-80% in equities and the rest in fixed income securities, and the hybrid-debt plan will invest 5-30% in equities and the rest in fixed income securities.

All three will offer section 80C tax deduction benefits and come with a five-year lock in. Over and above the lock-in, there is an exit load if you redeem before you attain the age of 60.

WHAT WORKS...

The fund managers come with a good track record. Chirag Setalvad, who will manage the equity component, also manages the successful HDFC Midcap Opportunities Fund. Setalvad will, however, use a multi-cap strategy and will invest in scrips and sectors across market capitalisation. Given that such schemes run with a limited corpus, he will run a concentrated equity portfolio. For the fixed income portion, fund manager Shobhit Mehrotra will stick to high credit rated securities and will invest in a mix of government securities and corporate bonds. A small portion may be kept aside for any credit opportunities as and when there is merit in them.

A lock-in period and an exit load will also nudge investors to remain invested for as long as they can, though this is still not stringent enough to discourage premature withdrawals before 60. If you invest your corpus to build a retirement nest, it’s best that you invest regularly throughout your working life and remain invested till turn at least 60.

...WHAT DOESN’T

At the heart of it, HDFC Retirement Savings Fund is a basket that consists an equity fund, an equity-oriented fund with some exposure to fixed income securities and a fixed-income oriented fund with a small equity exposure. There are scores of existing schemes in the market that look just like these. To build a good retirement nest, you don’t really need a fund that has ‘retirement’ written on its brochure. Any ordinary equity-oriented fund is good enough, provided it is well-managed and you stay invested in a disciplined fashion. Sure, the lock-in and exit loads do their bit to make investors stay invested, but self-discipline ought to work as well.

MINT MONEY TAKE

We usually do not recommend targeted schemes—those that have a targeted goal like a children’s education mutual fund scheme or a retirement saving fund, and so on. Stick to investing in existing plain-vanilla diversified schemes that come with a healthy track record.

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