Pension Fund Investment - Meaning and Types

November 14, 2018

1. National Pension Scheme (NPS):

   Launched by the government in the year 2004 for government employees and later expended to cover employees from all sectors, NPS is meant for financial inclusion in the post retirement years. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). During the deferment period, one has to invest till 60 years and then start getting annuity from a life insurance company on 40 percent of the corpus, while the balance can be withdrawn. The annuity and the returns during the deferment rely on the asset classes (which may be equity, government bonds and corporate bonds). There are tax benefits while the annuity is taxable. NPS operates in tier-I and tier-II accounts. Tier-I is the fixed account from which any deduction is not permissible (other than certain exceptions) while tier-II account functions as a savings account wherein money can be withdrawn from time to time. The lower capping i.e. minimum amount be invested in NPS in Rs. 6000 and there is no upper capping.

2. Public Provident Fund (PPF):

   The Public Provident Fund (PPF) remains a time-tested long-term investment. Since the PPF has a long tenure of 15 years, the impact of compounding of tax-free interest is huge, especially in the later years. The interest rate on PPF is set by the government every quarter based on the yield (return) of government securities. Further, since the interest earned and the principal invested is backed by sovereign guarantee, it makes it a safe investment.

3. Atal Pension Yojana

   APY): Any person between the age of 18 to 40 years and having a bank savings account can opt for this plan. It is a deferred pension plan and there are five plans or options providing guaranteed pension of Rs 1,000, Rs 2,000, Rs 3,000, Rs 4,000, and Rs 5,000 per month by the time the subscriber reaches the age of 60. Based on the amount of pension you choose, the premium amount will be determined.
   
   

4. Employees Provident Fund (EPF):

   Under EPF, an employee has to pay a certain contribution towards the scheme and an equal contribution is paid by the employer. The employee gets a lump sum amount including self and employer's contribution with interest on both, upon retirement. The contribution paid by the employer is 12 percent of basic wages plus dearness allowance plus retaining allowance. An equal contribution is payable by the employee also.
    

5. Retirement focused Mutual Fund schemes:

   Schemes like Franklin India Pension Fund, UTI Retirement Benefit Pension Fund, Reliance Retirement Fund, and HDFC Retirement Savings Fund offer market linked returns. However, the focus on equities is less and lock-in period varies from one scheme to another.

HDFC Life offers HDFC Life Click 2 Retire – a market linked retirement plan that helps you reach your retirement goals by planning well in advance. For details, click on the mentioned link: https://www.hdfclife.com/retirement-and-pension-plans/click-2-retire.

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