How big is the retirement market in India?
Retirement is a huge opportunity for mutual funds and for advisors. A number of studies show that 4 out of 5 people are not prepared for their retirement. Only 11% of the Indian workforce has any security in the form of pensions etc. on retirement. In Australia, the retirement assets are 147% of GDP. In most developed countries, retirement assets form 70% of GDP. In India, the entire retirement space constitutes less than 15% of GDP. So, the opportunity is big.
What are the challenges investors face while planning for their retirement?
The biggest challenge investors face is inertia. Assuming that inflation hovers at 7%, they don’t realize the fact that Rs. 30,000 of monthly expense today will become Rs. 2 lakh in 30 years. Retirement is taken casually by a lot of people. We have to raise awareness about retirement planning in India.
How do you see the opportunity for mutual funds in this market?
The opportunity for mutual funds in this market is huge. Currently, the entire retirement fund market in India is over Rs. 10 lakh crore. The opportunity for MFs is especially big given the fact that our product is much more tax efficient, transparent, liquid and flexible. We are pleased that after 15 years, we are the first fund house to get approval from Central Board of Direct Taxes (CBDT) under Section 80 C of the Income Tax Act for a pension scheme. This is the only notified equity scheme in the retirement space. We don’t see any retirement product in the country which offers predominantly equity exposure.
Your retirement fund has the same benefit of Rs. 1.50 lakh tax exemption which is enjoyed by other products like PPFS, ELSS, etc. in the same category. Do you think the government should have given a separate tax exemption limit for MF linked retirement products?
Retirement is a very important category which we aim to build irrespective of whether it comes with tax benefit or not. Yes, tax is an important aspect to draw people towards investing in this fund. If you save Rs. 5,000 per month for the next 30 years, you can withdraw Rs. 3 lakh per month post retirement. (Assuming that equity delivers 15% CAGR) during the accumulation phase. Post retirement, you could get 8%-9% in a conservative strategy. The good thing is that we can now get exemption on investments up to Rs. 1.50 lakh under Section 80 C of the Investment Act which was Rs. 1 lakh earlier. As far as competition from other products is concerned, we feel there is no better investment avenue than mutual funds. Yes, we feel there should be a separate exemption limit for retirement products, may be in the section 80 CCD, which is given to pension scheme. We believe the government should give additional tax benefits for MF linked retirement funds.
How is your fund designed to help investors meet their retirement goals?
The name of the fund binds the investor to the goal. The fund has a lock-in of five years. There is an exit load of 1% for any withdrawals after this 5 year lock in period and before the investor attains 60 years of age. It has some unique features. The scheme comes with two options – wealth creation and income generation. Investors can move between these two options any number of times without paying any exit load. It offers a facility called ‘auto switch’. As you reach towards your retirement age you can switch from ‘wealth creation option’ to ‘income generation option’. Additionally, there is an ‘auto’ option which automatically switches investments from ‘wealth option’ to ‘income generation option’ if you attain 50 years of age. When you reach 60 years of age, we have SWP option through which you can decide how much annuity you wish to withdraw annually or monthly.
How do you plan to compete with retirement products offered by insurance firms and government's NPS? What is the main draw for your product?
The main draw is that it is the only fund in the country which is a notified pension scheme offering predominant equity exposure. Only equity can beat inflation over a longer period of time. As explained earlier, this fund is far superior compared to other products available in the retirement space.
How many investors are you targeting to bring in this fund?
There are over four crore folios in the industry and almost 70 lakh live SIPs. Those who have invested through SIPs have seen the benefits of investing in mutual funds. We would definitely want 10-15% of SIP investors to invest in this fund. Incidentally, our Reliance Growth Fund crossed Rs. 800 NAV. So our investors know the wonders of long term equity investment. We are aiming to attract at least 10 lakh investors in this fund over the next three years.
