Axis and SBI have filed draft offer documents with SEBI to launch their retirement linked mutual funds with features like insurance coverage, annuity etc.
Mutual fund houses are getting innovative in designing their products. Recently, two fund houses – Axis and SBI have filed draft offer documents with SEBI to launch their retirement linked mutual funds having some unique features like insurance coverage, annuity etc.
Axis MF’s Retirement Planning Fund, an open ended mutual fund retirement linked plan, will invest in equity and debt. The scheme will offer two plans – compulsory lock-in and no lock-in. While compulsory lock-in can be redeemed only after an investor attains 60 years of age, no lock-in plan can be redeemed at any point of time; however, it will be subject to an exit load for three years.
The scheme comes with features like life insurance coverage and annuity. The fund house will provide term life insurance coverage to its unit holders who have not turned 60. Interestingly, the fund house will pay premium from the fund’s expense ratio. The annuity will be offered to investors who have turned 60. This is a voluntary option. The fund house will help channelize their money (redeemed from units) into an annuity policy.
Similarly, SBI open end Retirement Benefit Fund seeks to provide a comprehensive retirement saving solution by investing in equity, debt, real estate investment trust (REIT) and gold. The scheme will be available in five plans - opportunistic, moderate growth, balanced, protective growth and conservative. As the name suggests, opportunistic plan will have highest equity exposure and moderate exposure to other securities like REIT, gold and debt. The other options come with varying degree of exposure to each asset class to suit the risk appetite of different investors. The scheme will charge an exit load of up to 5% for five years depending on the tenure of holding. Exit load will decrease as the holding tenure increases. No exit load will be charged for investors above 55 years of age.
Dinesh Khara, Chief Executive Officer, SBI Mutual Fund, said that this product will help people build a nest egg for retirement. “While, equity portion will help appreciate the capital, REIT and gold will hedge the portfolio against market risk and volatility. The debt component will ensure that the capital is protected.”
SBI’s scheme will also offer life insurance coverage to its investors under a group life insurance policy. The fund house is planning to provide health insurance coverage in future. The fund house will pay the premiums from the expense ratio charged to investors.
Sharing the rationale behind offering an insurance cover with the retirement plan, Khara told Cafemutual that it will help investors to save for retirement along with protecting their life. “We want to provide one stop solution through our retirement plan. We have observed that many investors want to save for retirement but due to other preferences like life insurance they delay investing for the retirement.”
However, fund houses can’t launch these schemes without Central Board of Direct Taxes (CBDT’s) approval.
Both, Axis and SBI have approached CBDT to get tax benefit under Section 80C of the Income Tax Act. “The AMC shall apply to Central Board of Direct Taxes, Ministry of Finance for approval of the scheme as a Notified Pension Fund under Section 80C(2)(xiv) of the Income Tax Act, 1961. On being notified as a Pension Fund, investment made in the Scheme will be eligible for tax benefit under Section 80C of the Income-tax Act, 1961,” says Axis MF in its draft offer document.
SBI Mutual Fund is hopeful of getting the approval soon to launch this scheme.
Recently, when asked in an interview with Value Research about clarity on uniform tax treatment for pension and mutual fund linked retirement plan, SEBI Chairman UK Sinha said, “It’s true that this was mentioned in the budget summary, but was not there in the speech, or the bill. However, since then, the government clarified that no change in the law is required for mutual fund retirement plans. If any AMC wants to launch such a fund, it can do so. It should file for approval with SEBI. If SEBI approves it, then it can approach the CBDT (Central Board of Direct Taxes), which will give its consent on the basis of SEBI’s approval. We’ve told AMFI about this and I believe one such fund has already been submitted for approval.”
Currently, only two fund houses have retirement linked pension plans – Franklin Templeton Pension Fund and UTI Retirement Benefit Pension Fund.
Last year, HDFC, Pramerica and Reliance had filed offer documents with SEBI to launch their retirement linked plans which presumably did not get approval as there was ambiguity regarding their eligibility to be treated as retirement funds.
