Pension Funds

Money makes the world go round, there is no doubt about that, and most of us work for a major portion of our lives trying to amass sufficient wealth to cater to our financial needs. On an average, an individual works for around 30 years in his/her lifetime, aiming to have sufficient funds to provide for the rest of his/her life, especially during the post-retirement phase.

Retirement – The start of a new financial life

Retirement is a phase of life most of us forward too, but not necessarily from the financial point of view. Limited resources and lack of income in most cases results in a change of lifestyle, with most people having to find ways to make money to meet basic requirements. Simple planning during the middle stages of our life can ensure that retirement doesn’t become a financially taxing period, providing sufficient income sources to lead a healthy and financially comfortable life.

What are Pension Funds?

The term “Pension Fund” as the name suggests, is a pool of money which is designed to offer financial relief to an individual during his retirement. It is typically an asset pool comprising investments from a number of individuals which provides pension to members once they retire from work. Pension Funds can be offered either in the form of mutual funds or could be government backed initiatives which utilise the amount invested and re-invest them in relevant instruments, ensuring that members have a steady stream of income once the plan matures.

Why choose a Pension Fund

A Pension Fund ensures that investors have a steady source of income even during their retirement, helping them stay financially independent. Not only do they offer monetary relief in the future, they also provide tax exemptions, helping one save money during the present. Apart from this, a mutual pension fund invests primarily in equity, offering protection against inflation, providing an opportunity to earn great returns on an initial investment. Flexible payment modes and a sense of security make them an ideal partner to enjoy a post-retirement life.

Best time to invest in a Pension Fund

Investing in a good pension fund is a smart move, with the best time to invest being in your mid-20’s or early 30’s. The earlier one invests, the more their fund grows, offering increased returns. While it is possible to invest at any age, the primary factor one should consider is the return they expect, with late investments offering lower returns in most cases. Putting away a certain portion of your income towards a plan will offer incentives after retirement. Waiting to attain a certain age before investing could make a pension plan redundant, with it advisable to start as early as possible.

Advantages and disadvantages of a Pension Fund

Listed below are some of the key advantages of a pension fund.

  • Assured returns – Investing in a pension fund ensures assured returns, helping one plan their financial future during retirement.
  • Flexibility – The income an individual receives from a pension fund can be modified to suit his/her needs, with most funds offering either monthly, quarterly or yearly payouts during retirement. One can also choose to avail the entire amount as a lumpsum, as per their needs.
  • Tax exemptions – Investments made towards a pension fund are eligible for tax deductions/exemptions, as per existing income tax rules.
  • Financial independence – Investing in a pension fund ensures that an individual is financially independent, having funds to lead a fruitful life, even after retirement.
  • Growth – Most funds invest a portion of the money, thereby offering decent returns to investors.

Some of the disadvantages of pension funds are listed below.

  • Limited access – Individuals have limited access to the fund before retirement, making it hard to avail finances during a financial emergency. These funds are typically available only after the individual retires.
  • Limited control – Investors do not have control over their money after it is invested, with fund managers or experts typically utilising these funds to meet their financial goals.
  • Limited growth – Investing in a pension fund doesn’t offer the financial growth which can be availed through other investments, primarily due to the fact that most pension funds invest in low risk products.
Popular Pension Funds in India

Apart from the government backed pension funds like National Pension System, a few private entities also offer this option, with the popular ones listed below.

  • Franklin India Pension Fund
  • Reliance Retirement Fund
  • UTI Retirement Benefit Pension Fund


Mutual Fund investments will be subject to market risks. Any mutual fund listed in the document does not guarantee fund performance or its underlying creditworthiness. Do read the mutual fund document thoroughly before investing. Specific investment needs and other factors have to be taken into account while designing a mutual fund portfolio.

GST rate of 18% applicable for all financial services effective July 1, 2017.

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