Best Retirement Funds – Top Mutual Fund for Retirement in India

10 min read • Published 30 October 2022
Written by Animesh Gupta
Keep reading about the popular retirement mutual funds! 

If you are wondering how to build your retirement corpus, you should know that it’s all about proper planning and setting goals. Your main aim for retirement should be to understand the amount of income you require and its frequency. 

There are many investment options available to save for retirement, including government pension schemes, life insurance policies etc. Investing in mutual funds to multiply your savings, is an alternative to these conventional options. You can easily find a mutual fund for retirement in the market that will suit your risk appetite and requirements. 

List of 10 Best Retirement Mutual Funds in India

Below we have listed the 10 best retirement funds in India in a tabular format for your ease:

Name of the Mutual Fund5-Year Annualised Returns 
HDFC Retirement Savings Fund – Equity Plan – Direct Plan-Growth Retirement Fund15.43%
HDFC Retirement Savings Fund – Equity Plan – Regular Plan- Growth Retirement Fund13.86%
DSP Flexi Cap Fund – Direct Plan-Growth 13.33%
HDFC Retirement Savings Fund – Hybrid- Equity Plan – Direct Plan-Growth 12.64%
Tata Retirement Savings Fund – Direct Plan – Progressive Plan – Growth 11.00%
HDFC Retirement Savings Fund – Hybrid- Equity Plan – Regular Plan- Growth 11.31%
Tata Retirement Savings Fund – Direct Plan – Moderate Plan – Growth 10.46%
Tata Retirement Savings Fund – Regular Plan – Progressive Plan – Growth 9.34%
Tata Retirement Savings Fund – Regular Plan – Moderate Plan – Growth 9.28%
Nippon India Retirement Fund – Wealth Creation Scheme – Direct Plan-Growth 7.89%
*Returns and NAV as of September 5, 2022

Also Read: Top Investment Avenues For Golden Retirement Years

What Is a Retirement Mutual Fund?

Retirement mutual funds are curated explicitly in a way so that they can help investors accumulate wealth for their post retirement period. These funds lock in your investment for a minimum of five years or until your retirement, depending on which is the shorter period.

A retirement fund is an open-ended and solution-oriented mutual fund. To generate consistent income for the investors, these funds (according to the scheme objective), invest majorly either in the low risk instruments like govt securities or high risk instruments like equities. 

Additionally, these funds also take the surging inflation into account when they work on generating the funds for retirement. Investors can invest in such funds via SIP or lump sum. However, SIP or Systematic Investment Plan is the highly preferred way to invest for retirement as it helps to accumulate wealth by investing regularly in small amounts.

How Do Retirement Mutual Funds Work?

Solution-oriented funds like retirement funds are a relatively new type of mutual funds that allow an investor to build a corpus for steady income. These funds have a lock-in period to ensure that investors cannot withdraw their funds prematurely. 

After the investor retires from work, these funds become his/her primary source of revenue that pays for all their daily needs and unpredictable expenses. Generally, these funds offer returns either as a monthly annuity or in a lump-sum amount. In the case of monthly annuity, a fixed amount is paid every month to the investor, including inflation protection in most cases. On the other hand, lump-sum payments allow investors to withdraw the entire accumulated amount at the time of retirement.

Also Read: Step-By-Step Approach To Retirement Planning

Who Should Invest in Mutual Funds for Retirement?

Here are some investors who may find these types of mutual fund schemes worthwhile:

  • There is no bar on the minimum age for investing in them. From investors in their early 20s to people in their 40s who will soon retire within the next 10 to 20 years, can invest in such funds. However, you should note that while investing in equity-based mutual funds one should have a long-term horizon to reap maximum returns.
  • When people are nearing retirement or have already retired are always highly risk averse. Retirement mutual funds invest in relatively lower-risk instruments, and hence they are best suited for those who have medium to low risk appetite.
  • Investors who do not have knowledge or time to make a Do It Yourself (DIY) equity portfolio in case of retirement can as well invest in such funds. 

What Are the Benefits of Investing in Retirement Funds in India?

Planning for your retirement is essential due to various reasons like inflation and the rising cost of medical bills. Below are certain benefits that are common in most of the best mutual funds for retirement:

  • Flexibility- Unlike other retirement policies such as the NPS, retirement mutual funds provide flexibility to investors as they do not need to purchase any annuity. Investors can opt for lump sum or monthly SIPs based on their economic status and plans. 
  • Inflation Protection- Many retirement mutual funds that are performing well currently, provide inflation benefits to the investors. 
  • Help in realising Long-Term Goals- People primarily invest in mutual funds for retirement because they want to achieve a long-term goal: preparing wealth for their future. The main objective is to help investors accrue a considerable corpus with nominal risks. Hence, they are pretty safe options for long-term investments. 
  • Provides Life Insurance: Many retirement plans also provide life cover. If the fund-holder dies before his/her retirement, the funds provide financial support to the family. Moreover, some retirement plans allow investors to withdraw a lump-sum amount in case of some medical emergency. 

Also Read: Important Lessons from People Who Chose Early Retirement

What Are the Limitations of Retirement Mutual Funds?

Investing in a mutual fund for retirement has many benefits, but it also comes with certain disadvantages. These are:

  • Liquidity– Liquidity in retirement funds is usually low as there is a heavy exit load in case of early withdrawal. You should obtain all the necessary knowledge about exit loads and charges before purchasing the plan.
  • No Tax Benefits- In Mutual Funds, only the ELSS scheme allows for tax deductions under Section 80C of the Income Tax Act, 1961. Mutual funds for retirement do not qualify for tax deductions u/s 80C. 

Read More: Aggressive Hybrid Mutual Funds: Top Performing Aggressive Hybrid Fund in India

Taxability of Retirement Mutual Funds

The returns that investors receive from mutual funds for retirement will be taxed in the following ways:

Taxation of Equity-Oriented Funds

  • Short-Term Capital Gains: If the investors sell their funds within one year from the time of investment, they will have to pay 15% plus cess. 
  • Long-Term Capital Gains: If the investors sell the funds after holding the fund units for a year, then they are required to pay 10% taxes from the return he/she receives. However, if these returns are less than Rs. 1 lakh, they are not required to pay any taxes. 
  • Income Distribution Cum Capital Withdrawal (IDCW) Plan: If the investors receive any dividends from the Income Distribution cum Capital Withdrawal plan, they will have to pay taxes according to their tax bracket. The dividends will be added to the investor’s income, and the tax amount will be calculated. 

Taxation of Debt-Oriented Funds

  • Short-Term Capital Gains: Individuals will have to pay taxes according to their tax slabs if they withdraw the funds before 36 months.
  • Long-Term Capital Gains: With the recent amendment, the taxation for the long term capital gain on the mutual fund is same as the taxation on the short term capital gain
  • IDCW: Dividends are taxed similarly for both equity and debt instruments. 

Things to Consider Prior to Investing in Retirement Funds

Below are certain things that one must take into consideration before investing in any retirement fund: 

  • Financial Goals

When you start to invest, you need to link your investments with a financial goal. In this case, your financial plan involves accumulating enough wealth for savings so that you can have regular income even after retirement. 

Furthermore, having a financial goal will also help you to choose a fund aligned with your requirements. 

  • Expense Ratio

The expense ratio is the amount AMCs charge an investor for handling the funds on his or her behalf. This also includes fund managers’ remuneration and the expenses required to manage those funds. 

Suppose you choose a fund with a high expense ratio. In that case, the AMC will automatically deduct its share from your returns, and you will take home fewer profits than what you initially expected when you invested the money. Thus, choosing a fund with a lower expense ratio over one with higher costs is always wise. 

  • Returns

Unlike most retirement schemes like the PPF/EPF or the NPS, mutual funds do not guarantee returns. However, people have noticed that equity funds tend to provide higher returns than their debt counterparts. However, equity funds also come with a high-risk factor. 

Many AMCs suggest that investors park their money for a longer time because this will give the fund the chance to generate more returns. 

Also Read: Retirement Bucket Strategy: Meaning, Investment Options & Other Details

Final Word

Many people tend to postpone their retirement planning thinking that retirement is far away and nearer term priorities seem important. However, to effectively ensure financial independence in your golden years, you can consider investing in mutual funds. This way, you can create a stable fixed income enough to take care of your daily expenses with some cash to spare. 

You will also save for unforeseeable circumstances like medical emergencies often accompanying old age. Moreover, investing in these funds will allow you to stay independent even after you will no longer be earning actively. 

FAQs about Mutual Fund for Retirement

What are the modes of investment for mutual funds for retirement?

There are two modes through which you can invest in some of the best mutual funds for retirement planning. These two modes are:

> SIP (Systematic Investment Plan): It allows you to invest small amounts regularly.
> Lump sum: This involves a one-time investment with a large sum of money.

How to invest in a mutual fund online?

If you wish to invest in a mutual fund online, then you can follow these steps:
Step 1: Select and visit the official website of an AMC of your choice.
Step 2: Create your account with that AMC.
Step 3: Once you are done creating your account, select a mutual fund scheme.
Step 4: You can then pay via net banking or choose other payment gateways like UPI.
Step 5: Lastly, you can track your investments via the same website. 

How can I calculate the amount I need for retirement?

While calculating the amount you require for your retirement, you need to take into account certain factors like your current age, the years you have at hand before you retire and your monthly income. You also need to consider the inflation percentage before you do the calculations. Furthermore, you can use an online retirement fund calculator to avoid all these hassles.

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Animesh Gupta

Credit Principal
Animesh Gupta is a Chartered Accountant by profession and a NISM certified Mutual Fund Expert. He has over 5+ years of experience working in the Financial Services Industry. In his role at Wintwealth, he is part of the Credit and Risk team and evaluates the risk of the bonds available on Wintwealth's platform.

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