Reliance Mutual Fund Pension Plan: Do Not Invest!

Reliance Mutual Fund will soon be launching a pension fund in which investments will be eligible for 80C deduction. Here is why you should stay away.

According to CafeMutual, the fund will have,

  • a lock-in period of 5 years
  • an exit load of 1% if redeemed before 60
  • an equity-oriented fund option (min 65% equity) benchmarked to BSE 100
  • an income generation plan option (5-30% equity) benchmarked to  CRISIL Blended Index

This much information (assuming it is accurate) is good enough for me to suggest: Stay Away!

1.  The income generation plan is of no use for someone young planning for retirement. So let us eliminate that straight away. Needless to say, it will be pushed as a product for the so-called risk-averse. That bond returns also fluctuate is another matter. Will it help someone old? Don't think so. Either they have enough equity exposure already so they will never touch this product or they are knee deep in endowment plans to 'trust' mutual funds.

2. The equity-oriented fund option is a balanced fund. When we have so many terrific balanced funds in the market, HDFC Prudence, HDFC Balanced, ICICI Balanced, Franklin Balanced, to name just a few, without any exit load beyond 1-2 years of investment, without  any lock-period,  why on Earth would you choose this NFO?! That there are other options (if not better) to build an agressive portfolio is another matter.

3. So obviously the 80C will be a big selling factor. All those who have not yet planned their tax-savings for the current FY, and those  who just 'want to invest to save tax', are easy targets for this fund.

4. Buying this pension fund only to save tax is a dumb idea. You cannot get rid of it for 5Y and after that lose 1% of your sum.  Why not stick to EPF + PPF +ELSS where investments are made as per a fixed asset allocation and keep it simple?

5. There is talk that ELSS could be removed in the coming budget. Even if this happens do not invest in such pension funds. As long as the 80C limit and PPF limits are the same, there is no need to consider such products. I would rather invest in PPF than in such pension funds. The reason being, after a couple of years when income increases(for the salaried), dependence on PPF for 80C will come down and investments in more liquid instruments can be considered. Perhaps one could use these funds to invest as per asset allocation until 80C is taken off by EPF or NPS alone. Perhaps, but that would depend on fund performance and market movement. You don't want a 1% exit load when your folio is red, do you! As long as there is a reasonable chance of moving up tax-slabs, using this pension fund will only complicate matters. Even otherwise it will complicate matters, period.

6. When you build a corpus for any goal, liquidity is more important than returns. The investor must be free to switch funds between and within asset classes for rebalancing or when an asset underperforms. Freedom to make tactical calls also is important.

7. Reacting to the news that many more such pension funds are on the anvil, I earlier wrote: Say NO to Packaged Financial Products As mentioned here, a packed product offers little freedom to the investor.  Wealth creation with volatile asset classes requires all the freedom we can get.

8. Naturally this product is better than the New Pension Scheme, but that is not much of a selling point because one should not invest in the NPS unless one's employer contributes to it That is like comparing a rock and a hard place!

9. Stay away from this pension plan and all such plans. Build your own retirement basket (term coined by Subra) with productive. liquid assets. Remove the word 'pension' from your mindset.  People who build wealth will want to generate an inflation-protected income and do not need a pension - not from such products anyway. Only people who do not understand retirement planning choose 'pension plans'.

10.  This development is touted as the 'next big thing' ... not for investors but for the 'industry' ( see news reports on this). Meaning they are after your money to lock it up for long. Don't give in.  Let us give them our money but not towards such pension funds. Let us enjoy good returns (hopefully) and good liquidity in other funds. 

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26 thoughts on “Reliance Mutual Fund Pension Plan: Do Not Invest!

  1. SSB

    Known fund performance/track is better then unknown(future) fund performance.Since there is no liquidity for 5 years then later on 1% exit load, it is better to invest in HDFC/ICICI equity or balanced funds.If duration is more then 5 years equity may give better performance.

    Reply
  2. SSB

    Known fund performance/track is better then unknown(future) fund performance.Since there is no liquidity for 5 years then later on 1% exit load, it is better to invest in HDFC/ICICI equity or balanced funds.If duration is more then 5 years equity may give better performance.

    Reply
  3. Deep

    a portfolio of diversified equity funds and/or index funds using direct option r best for long term goals.Why complicate things unnecessarily ?

    Reply
  4. Deep

    a portfolio of diversified equity funds and/or index funds using direct option r best for long term goals.Why complicate things unnecessarily ?

    Reply
  5. shankar

    Hi Pattu , did this mistake 5 years back when i withdrew my EPF when my company closed and advisor (?) suggested pension plan from franklin . i have a 5 year return of around 11.6 % but a 3 % exit load before age 58 and it is not direct investment . i have decided to take the 3 % hit and move to equity mutual funds now . timely advise

    Reply
    1. pattu

      Shankar, TIPP or Franklin pension plan as it now called is a decent debt product. As long as you don't invest a huge amt there, suggest you continue it.

      Reply
  6. shankar

    Hi Pattu , did this mistake 5 years back when i withdrew my EPF when my company closed and advisor (?) suggested pension plan from franklin . i have a 5 year return of around 11.6 % but a 3 % exit load before age 58 and it is not direct investment . i have decided to take the 3 % hit and move to equity mutual funds now . timely advise

    Reply
    1. pattu

      Shankar, TIPP or Franklin pension plan as it now called is a decent debt product. As long as you don't invest a huge amt there, suggest you continue it.

      Reply
  7. arnab

    i have invested in this NFO also set up a sip. i did this before referring to your blog. my objective of taking this fund is create a retirement corpus. i regularly invest directly in equities along with other equity and balanced funds. i never keep the tax advantage in mind. only objective orientated buy and continue with sip. now i don't feel comfortable after reading this page. should i stop sip?

    Reply
  8. arnab

    i have invested in this NFO also set up a sip. i did this before referring to your blog. my objective of taking this fund is create a retirement corpus. i regularly invest directly in equities along with other equity and balanced funds. i never keep the tax advantage in mind. only objective orientated buy and continue with sip. now i don't feel comfortable after reading this page. should i stop sip?

    Reply
  9. Gopal

    Very well written. Absolutely no benefit, except one point you missed.

    Not every one is blessed with habit of behaving responsibly with money. So highly likely that there are some folks, who would liquidate their money for buying anything. (I personally know them).
    For such folks, investing in these kind of products is better. That 1% hit upon withdrawal before 60 might force them to stick with their investment for long term.

    Reply
  10. Gopal

    Very well written. Absolutely no benefit, except one point you missed.

    Not every one is blessed with habit of behaving responsibly with money. So highly likely that there are some folks, who would liquidate their money for buying anything. (I personally know them).
    For such folks, investing in these kind of products is better. That 1% hit upon withdrawal before 60 might force them to stick with their investment for long term.

    Reply

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