Reliance Retirement Fund – Equity Oriented Pension Scheme

Reliance Retirement Fund (RPF)

RRF is an open-ended plan, which means that it is easy to get to for subscription and repurchase uninterruptedly. Plans like these do not have a predetermined maturity period. Reliance MF claims that this is the first Notified Retirement Fund that has Equity oriented scheme. (The fund has received permission from the central govt. and has been notified as a pension fund under Section 80C(2)(xiv) of the Income Tax Act.)

Essentially, Reliance Retirement Fund provides two distinctive schemes with different investment range. One is the Wealth Creation Scheme which is an equity oriented plan. In this plan, 65% to 100 % of the funds are invested in Equity & Equity related instruments. The residual 0 – 35% is invested in debt and money market securities. The second one is the Income Generation Scheme, which is a Debt oriented plan. 70 to 95% of the scheme’s funds are invested in debt and money market securities while the residual 5 – 30% in equity/equity related instruments.

The Wealth Creation scheme is for Accumulation phase which is a phase in an investor’s life when people put together or assemble up their savings. The Income generation alternative is for the investors who are nearing their retirement and cannot afford the risk factor in investments. The investors can switch from one to another scheme without any limitation. The lock-in period is that of 5 years. Exit load of 1% is applicable on release (sale of units) before reaching 60 years of age.

The fund also offers an ‘Auto Transfer’ facility where the investors’ entire investment (Lump sum/SIP) is transferred automatically from Wealth Creation Plan to Income Generation Plan (with no exit load) at any time as mentioned by the investor (it must be within or after the lock-in period) or upon achieving  50 years of age.

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Lump sum, Systematic Investment Plan and Step-up methods are available. The Step-up option is a facility wherein an investor who has signed up for SIP, has an alternative to amplify the amount of the SIP Installment by a preset amount at pre-defined gaps. Systematic Withdrawal (can be manual or automatic) option is obtainable to withdraw money during the investor’s retirement phase. The Auto SWP is a non-compulsory facility that aims to provide a customary inflow of money to the investors, be it monthly, quarterly, annual by routine redemption of units on or after 60 years of age.

Investments in Reliance Retirement Fund are entitled for tax deductions up-to Rs 1.5 Lakh in a Financial Year, as per Section 80C of the Income Tax Act 1961. One remarkable trait of this fund is that the employers can sign up for this scheme and can invest in Reliance Retirement Fund systematically by deducting the SIP amount from the employee’s income.

This mutual fund scheme offers two plans – Growth & Dividend pay-out options. Growth plan has again two sub-plans: One is, Growth and another is, Bonus oriented. The minimum investment should be Rs 5,000 for Lump sum Option, Rs 500 for Monthly SIPs, Rs 1,500 for Quarterly SIPs, Rs 5,000 for Annual SIP.

There are a few important points to think about before investing in this retirement fund:

1. Many first-rate mutual funds with established track record are available in the market. NFO schemes do not have past performance data.
2. RRF seems so much more like an ULIP (Unit Linked Insurance Plan) minus the risk coverage. So, not good.
3. The investments made under this plan do have income tax exclusions; but, we know that Section 80C is already jam-packed with various investment options. If the Government supports these funds for tax exemptions under other Sections (like the one offered to National Pension Scheme under Section 80 CCD, which is over & above Rs 1.5 lakh provided under section 80c), we could see good demand for these types of pension plans.