How To?

What are retirement mutual funds, and how to invest in them in 2022?

Personal Finance

Retirement is one of the most terrifying stages of life because you will no longer be able to work. With no work, there will be worries about finances. Given the fact that the inflation rate is relatively high, your fears are entirely justified. However, there are ways to improve your savings. These savings will help you during your retirement, ensuring you have no shortage of funds. Although most working people can withdraw pension from their PF account, the yield is somewhat low. This is where retirement mutual funds come into play.

Retirement mutual funds help you save a specific part of your income for retirement. Since it involves the stock market, the returns are higher than those of general savings plans. Besides, you will also have the option to invest in retirement mutual funds according to your expected return. This article discusses everything you need to know about retirement mutual funds and the investment process.

What are retirement mutual funds?

A retirement mutual fund is a pool of money where deposits come from multiple investors. Usually, a financial organisation manages mutual funds. Therefore, the risks are considerably low. Besides, you can invest in numerous mutual funds to increase your returns after retirement. Once the fund matures, you will get the total deposit plus interest for financing your needs after retirement.

There are three important things to know about retirement mutual funds.

1. They can have a lock-in period.

Most retirement mutual funds have a specific lock-in period. It means that you cannot withdraw the invested money during this time. For instance, a retirement mutual fund with a 5-year lock-in period will freeze the money during this time. You can only withdraw your money after five years. Therefore, consider the lock-in period before you invest in a mutual fund.

2. You can avail yourself of tax benefits by investing in retirement mutual funds.

You can get benefits under Section 80C of the Income Tax Act if you invest in retirement mutual funds. Under the Income Tax Act, you are eligible for an exemption of up to INR 1.5 lakh. In addition, you can claim an exemption of up to INR 1 lakh on capital gains.

3. SIPs are the best way to manage retirement mutual funds.

Several securities also offer retirement savings funds through SIP. Systematic investment plans allow you to invest a specific amount per month. You need not make purchases manually every month. The minimum SIP amount is as low as INR 500 per month.

What are the advantages of retirement mutual funds?

Before you invest in retirement mutual funds, understand their benefits. Here are some benefits of retirement mutual funds.

1. You are eligible for tax exemptions.

If you invest in mutual funds, you can enjoy tax exemptions under Section 80C of the Income Tax Act. Tax exemptions are provided according to your capital gains and income per year. Therefore, as given above, you can get up to INR 2.5 lakh exempt from your retirement mutual funds.

2. Retirement mutual funds have higher yields.

Most retirement mutual funds offer higher interest rates than the National Pension Scheme. Therefore, this will help you accumulate more money for your retirement. With higher interest rates, you can also decrease your SIP amount if needed.

3. They are not as risky.

Mutual funds diversify investment in the capital markets. Therefore, not all money is invested in equity or debt. Most retirement mutual funds have a specific debt-to-equity ratio. Therefore, the mutual fund’s value is not affected as much by markets.

For instance, if the market price falls, your investment will not be as exposed as other investment options like shares.

4. There are many investment options.

There are many mutual funds. Therefore, you can invest in multiple mutual funds with different lock-in periods and return rates. You can select a retirement mutual fund based on your risk appetite, lock-in periods, desired rate of return, etc.

5. There are two types of instalments.

You will get two options for investing in retirement mutual funds. First, you can opt for the SIP or systematic investment plan. Here, you have to deposit a certain fixed amount every month. The second is the regular or Flexi mutual fund. From the name itself, you can understand that monthly investments can be different according to your convenience. You can make lump-sum investments based on your finances.

6. Mutual funds have a lower lock-in period.

Compared to the NPS, retirement mutual funds have a lower lock-in period. The National Pension Scheme has a lock-in period of 8 to 10 years, but retirement mutual funds have a lock-in period of 5 to 6 years. 

How to invest in retirement mutual funds?

  1. Connect with a professional advisor to learn more about the pros and cons of different retirement plans. 
  2. Decide on the type of retirement mutual fund you want to invest in. Old funds offer tax exemption under Section 80C of the Income Tax Act. On the other hand, the newer funds do not have any such provision.
  3. Once decided, check the expense ratio, return interest, and minimum SIP amount of the concerned mutual fund. 
  4. Study the 1-year, 5-year, 7-year, and 10-year returns to understand the performance of the SIP. See the debt-to-equity ratio and the rating of the mutual fund on the risk meter.
  5. Consult a professional if you are not sure you are making the right choice.


Mutual funds are subject to risk. However, they can help you save money for retirement. There are many types of mutual funds, and retirement mutual funds are the ideal way to save money for retirement. With many scheme options, flexible SIP amounts, short lock-in periods, and other benefits, retirement mutual funds are beneficial for financial planning.

If you want more information about personal finance, visit Piramal Finance.