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Financial Term of the week- Retirement Funds

Retirement is a phase of life that you look forward to and plan for. Hence, it is often one of the very important long-term goals in anyone’s life. The ideal thing to do is to start investing for it earlier on and not redeem or withdraw that money until retirement. This investment can then become a source of income after you have retired. Also, your allocation to equity and debt may change as you grow older, depending on your risk appetite. To help you achieve your retirement goals, there are retirement mutual fund schemes.

Retirement funds are solution-oriented mutual fund schemes that enable investors to invest specifically for their retirement goals. They come with a lock-in period of 5 years or lock-in till retirement age whichever is earlier). You can redeem prior to your retirement age, but ideally, if you are looking to build a corpus for retirement, it may be better to stay invested. Post your retirement; a retirement fund can aim to offer you regular monthly income in the form of Systematic Withdrawal Plans (SWP).

The redemption from this fund can be made as a lump sum amount or in the form of SWP, as mentioned above. An investment, like the retirement fund, can help you in taking care of your expenses post-retirement. These funds invest in equity, equity-related, and fixed-income securities based on their investment strategy.

There can be two types of retirement funds-

Based on your risk appetite and investment objective, you can choose the one that suits your requirement better.

Benefits of Retirement Mutual Funds

Who should invest in Retirement Mutual Funds?

Apart from the investors who want to be disciplined investors for a long-term goal, those who are comfortable with their money being locked in for at least 5 years or till retirement age, whichever is earlier, can consider the retirement funds.

These funds can also work for investors who want to invest for a long-term goal like retirement but get perturbed by the market volatility and end up redeeming their investments. Since the goal is for long-term investment, it can also help you garner the benefits of the power of compounding. At the same time, rupee cost averaging can help you tide over market volatility by buying more units when the market is low and buying less when it is high.

Taxation of Retirement Funds

Depending on the orientation of the scheme, it can be categorised as either equity or other than equity scheme for the purpose of calculation of the capital gains tax.

For equity-oriented schemes-

Short-term capital gains (STCG) tax- For an investment horizon of not more than 12 months, the capital gains are considered as STCG, which is currently taxed at 15%.

Long-term capital gains (LTCG) tax- For an investment horizon of more than 12 months, the capital gains are considered as LTCG, which is currently taxed at 10% if your capital gain is Rs 1 lakh or above and comes with a Grandfathering clause. This clause basically exempts all gains made before 31st Jan ’18 from any tax.

For other than equity-oriented schemes-

Short-term capital gains (STCG) tax- If your holding period is not more than 36 months, then the capital gains are considered as STCG, which is currently taxed at applicable slab tax rates to the investor.

Long-term capital gains (LTCG) tax- For a holding period of more than 36 months, then capital gains are considered as LTCG, which is currently taxed at 20% with indexation (for resident investors).

Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit . For more info on KYC, change in various details & redressal of complaints, visit This is an investor education and awareness initiative by Nippon India Mutual Fund.