When launched, it would be just the third mutual fund scheme to be notified as a pension fund

Reliance Mutual Fund recently filed an offer document with the Securities and Exchange Board of India (SEBI) to launch a notified tax savings-cum-pension scheme—Reliance Retirement Fund. The scheme will get tax benefit (up to Rs1 lakh) as a Notified Pension Fund U/S 80C of the Income Tax Act, 1961, subject to the fund being notified by the central government under Section 80C(2)(xiiic) of the Income Tax Act, 1961. The two other mutual fund schemes notified as pension funds are Templeton India Pension Plan and UTI Retirement Benefit Pension Fund.
 

An initial lock-in period of five years would be applicable in the scheme from the date of allotment of units. The exit load would be 1% if redeemed/switched out before attainment of 60 years of age. Compared to the other two pension schemes, the Templeton India Pension Plan has a three-year lock-in period and an exit load of 3% before 58 years of age and UTI Retirement Benefit Pension Fund has no lock in period and after three years no exit load is charged.
 

The scheme will have two plans: Wealth Creation Plan and Income Generation Plan. The Wealth Creation Plan, having the BSE 100 index as the benchmark, will invest 65% to 100% in equity and equity related instruments and the rest in debt and money market instruments. The Income Generation Plan, as the name suggest will invest 70% to 95% in debt and money market instruments and 5% to 30% in equity instruments. The performance of this plan will be benchmarked against the Crisil MIP Blended Index. The aggressive plan of the scheme provides higher allocation towards equity compared to UTI Retirement Benefit Pension Fund and Templeton India Pension Plan which put in not more than 40% in equities. Those investing for a term of 10-15 years should benefit with the higher allocation towards equity.
 

There would be no long-term capital gain tax in the Wealth Creation Plan, as it would invest 65% or more in equity. The other plan would be subject to long-term capital gain tax.

The scheme would also provide an Auto Transfer Facility from the Wealth Creation Plan to the Income Generation Plan (without any exit load) upon completion of 50 years of age or as specified by the investor. This is an optional facility wherein investors’ entire investment (Lump sum/SIP) shall be switched automatically from the Wealth Creation Plan to the Income Generation Plan.
 

Investors can also opt for an Auto SWP (Systematic Withdrawal Plan) facility by automatic redemption of units (monthly/quarterly/annual) on or after 60 years of age or age after completion of the five-year lock in period, whichever is later.
 

Though the scheme looks ideal for investors saving for their retirement, from a tax saving point of view, the performance of the scheme is crucial. The annual scheme recurring expenses is the upper limit of that charged for equity and non-equity schemes. In terms of liquidity, this scheme scores better than the NPS (New Pension System), where the lock-in period is till the age of 60. It is also interesting to note that Reliance Capital Pension Fund is one of the pension fund manager for NPS.
 

The scheme will be managed by three fund managers—Sanjay Parekh, Senior Fund Manager–Equity Investments who has over 17 years of experience in capital market; Anju Chajjer, Fund Manager-Debt Investments, with over 11 years of experience; and Jahnvee Shah, Fund Manager-Overseas Investments, having six years experience in the capital market.
 

Reliance as a fund house has done well in the past. Most of their equity schemes have beaten their benchmarks in all of the last 12 five-year rolling periods with a monthly frequency. Few of the schemes have been top performers in their category in the past, as well. It would be interesting to see how this scheme performs.
 

Additional Details
 

For Lump sum: Rs5, 000 and in multiples of Rs500 thereafter
 

For SIP:
 

i. Monthly Frequency: Rs500 and in multiples of Rs500 thereafter
 

ii. Quarterly Frequency: Rs1,500 and in multiples of Rs500 thereafter
 

iii. Annual Frequency: Rs.5, 000 and in multiples of Re. 500 thereafter
 

Entry load: Nil
 

Exit Load: 1% if redeemed/switched out (other than Auto Transfer) before attainment of 60 years of age