Will mutual funds get a pension plan in budget 2018?

Mutual funds have been asking for a pension plan with an exclusive tax deduction for a long time. Some mutual fund players are hopeful that the government may finally allow it in the coming budget. “We are hopeful that the government would allow a pension plan. This will help us to offer a long-term retirement plan,” said a senior mutual fund official.

Currently, some mutual fund houses like UTI, Franklin, Reliance, HDFC, Tata, etc. offer retirement plans that qualify for tax deductions under Section 80C of the Income Tax Act.

However, mutual funds have been complaining that they are not getting necessary approvals to launch new retirement plans. Some also believe that without an exclusive tax break these schemes will not work, as most people exhaust the Section 80C benefit with their EPF, life insurance premium, and ELSS investments.

Currently, insurance companies almost have a monopoly in pension plans. Barring a few fund houses, most funds do not offer any long-term product designed to take care of retirement. Ironic, considering equity mutual funds are meant to achieve long-term financial goals.

Mutual funds have been complaining that though they are supposed to help investors meet long-term goals, they are not able to design special products for it because of the lack of a robust investment vehicle like retirement plans.

According to the mutual fund industry, these pension plans might have a lock-in period and there could be stiff penalties to discourage early withdrawals from the scheme. Currently, all investments options under Section 80C come with a mandatory lock-in period. Equity Linked Saving Schemes have the shortest lock-in period of three years, while one can withdraw entire proceeds from Public Provident Fund only after 15 years.

Investment experts believe that buying insurance products that combine investment is one of the main reason why people are under-insured and under-invested in this country. Since such products are very expensive, most investors get a small insurance cover and modest returns. The way out, according to them, is to separate insurance and investment needs. That is buy a pure term insurance plan to secure a life cover and invest in mutual funds to take care of investment needs.

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Via:: Economic times – Wealth

      

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