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Retirement Funds - Pension Plans and Mutual Funds

10/10/2022 |

A retirement investment plan primarily exists to fulfil your financial needs post-retirement. Such financial requirements include medical emergencies, living expenditures, and household expenses. You must invest in the apt retirement plans to safeguard your retirement years. Retirement and pension plans are excellent financial instruments that convert your hard-earned money into your post-retirement savings. To secure a stable retired life, you must have a sound retirement investment plan
 

The write-up ahead will give you a brief idea about mutual funds and pension plans that would help you make an informed decision for your retirement years. 
 

Mutual Funds and Pension Plans - Know the Basics
 

Insurance companies refer to financial instruments as pension plans and retirement plans when they offer combined benefits of saving and insurance. 
 

  • Deferred pension plan - Deferred pension plans feature two phases:

    • Accumulation phase - In the accumulation phase, you pay premiums, and the sum accumulates throughout the tenure, and a retirement corpus is developed. Once the pension plan tenure ends, the accumulated sum is utilised to buy an annuity. If you invest in a pension plan at this stage, investing a minimum of one-third amount in an annuity during retirement is compulsory. 

    • Distribution phase - Once the accumulation period is over, your policy matures, and you can begin withdrawing money from the retirement corpus. This phase is known as the distribution phase.

      For instance: If you start your investment at thirty years of age and plan to retire at fifty years, you consider living up to eighty years. In such a scenario, the accumulation phase lasts for twenty years, and the distribution phase will be thirty years. 

  • In most retirement plans, you typically start receiving a pension in the age bracket of forty to seventy years. If you plan to retire at fifty, you will be well covered in insurance. The period when an individual receives a retirement pension is also termed the annuity phase. 
     

  • Immediate annuity plan - Immediate annuity is paid right away. Instead of contributing year after year, you can pay in a go. You invest a lump sum and begin receiving the annuity amount immediately as your pension. Here, you get the flexibility to choose from a wide variety of annuity plans, and you can also select a suitable sum to invest. The payment frequency can also vary and be monthly, yearly, quarterly, etc.

    The market is flooded with multiple annuity plans, and numerous variants are available too. Some of the variants include increasing monthly income, monthly income, etc. You can choose based on your financial requirements, premium paying capacity, etc. 

  • Mutual fund retirement plans - A mutual fund retirement plan offers you a systematic withdrawal system for your money. You do not need to buy an annuity. This financial instrument provides liquidity to meet your current cash flow requirements.

    A systematic Investment Plan or SIP is a financial scheme where you need to invest a specified sum at a specific frequency. You can invest monthly or quarterly, etc. It enables you to invest a fixed sum regularly and, in return, rewards you with financial gains in the long term. It offers you an easy cash flow - it is flexible in modifying the amount or termination. You can terminate the plan by submitting a request. Once submitted, the SIP will discontinue. 

    Note:
     You can also increase or decrease the amount invested by terminating the existing plan and starting a new one. 

 

Know More About Pension Plans
 

A pension is a fixed amount of money you receive at regular intervals in the post-retirement years. A pension plan is a pension fund investment offered by insurance firms that help create retirement fundsPension plans offer regular pensions to save you from financial shortfalls when you are not employed. 
 

Advantages of Pension Plans


  • Help achieve uninterrupted income during retirement - A pension plan is an excellent retirement fund investment that secures your retirement days with a timely income. With a deferred annuity pension plan, you would receive a pension after retirement for the rest of your life. In addition, it is on you to set the payout frequency. You can have it yearly, quarterly, or monthly, as per requirement. 

  • No requirement to plan investments during retirement - If you own a retirement pension plan, you need not consider investing at your retirement age. This is a significant advantage, as when you invest after a certain age, the interest rate drops. At an older age, you would require investing more for a pension later.

    Short-term financial instruments like POMIS (Post Office Monthly Income Scheme) come with reinvestment risks. In contrast, annuity investments ensure a constant rate of payout lifelong. In addition, there is no cap on annuity investment, unlike other Senior Citizens’ Savings Schemes. 

Know More About Mutual Funds
 

Mutual funds are a pool of lump sums usually managed by a professional fund manager. It collects a large investment sum from multiple investors sharing common objectives. The lump sum is then invested in bonds, equities, and other securities. The investors then equally share the profits in ratio to their contribution. Mutual funds are one of the apt retirement plans so far.
 

Advantages of Mutual Funds
 
  • Ride out the short-term fluctuations with long-term investments - Short-term fluctuations will not affect your long-term goals when you invest in mutual funds. Mutual funds offer you more returns after a long-term investment that you can enjoy during retirement. 

  • Helps save tax*Opting for some mutual fund plans would give you tax* deductions under section 80C and growth. For instance, you can opt for Equity Linked Savings Scheme or ELSS mutual fund helps you save on tax*. If you invest for your retirement days, you should avoid mutual funds that invest in just larger caps. Such investments offer lesser returns. It is best to choose a fund that invests in a mix of midcaps and large caps. 
     

As these investment schemes focus on pool savings for your retirement period, you own the flexibility to lock in the amount till your retirement or even redeem the sum before that.
 

Conclusion
 

If you are looking for suitable retirement and pension plans, you can opt for a  Tata AIA policy and get a plan that is tailor-made for your needs. Retirement is an important phase in the life of every individual, and if you plan well in your working years, you can have a happy and secure retirement.


L&C/Advt/2022/Oct/2435 

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

What is the safest retirement fund?

None of the investment funds is entirely safe. However, there are some less-risk choices that you can count to be the safest investments. 

  • Fixed annuities
  • Bank savings accounts
  • Treasury securities
  • Money market accounts

What are the different modes of investment in a retirement fund?

There are mainly two ways to invest in a retirement fund:

  • You can opt to invest via a SIP or Systematic Investment Plan. It will allow you to invest a fixed amount of money at specific intervals like yearly, quarterly, and monthly. 
  • You can choose to invest a one-time lump sum amount.

Disclaimers

  • Insurance cover is available under the product.
  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.