There are many of us who are drawn to long term mutual fund investments to build their retirement corpus. For some, one of the main reasons could be the tax exemption under section 80C of the income tax act that it came with. However, if you are planning to invest in them now, note that these retirement mutual fund schemes no more give you the 80C benefit.
Popular mutual fund houses like ICICI Prudential and Aditya Birla Sun Life launched their retirement funds last week. Though these work just like the existing retirement funds, they do not come with the tax exemption benefits that the older ones did.
The last retirement based scheme to give the tax benefit under section 80C was the HDFC Retirement Fund that was launched back in 2016. This is because mutual fund houses have not received a written order from the regulator SEBI granting approval to provide the benefit under section 80C.
What should you do?
- If your concern is to max out on the Rs 1.5 lakh limit of tax exemption under section 80C, you have plenty of options available to do so. Additionally, tax benefit should not be the basis of your investments, it should rather be your investment goal, the returns you could be making and the risk you are willing to take.
- You can choose from the good and plain equity-based mutual fund schemes, especially if you are a long time away from your retirement years. The key is to maintain the discipline to stay invested in it for a long stretch.
- If you are closer to retirement, you could avoid equity. In fact, if you have already reached your target corpus amount, your priority should be to safeguard it with conservative instruments like debt rather than expose it to market volatility.
- Some retirement schemes also come with the age-specific options to help you make the most of your deposits. For example, the Aditya Birla Sun Life Retirement Fund comes with the flexibility to design your retirement plan according to age. If you are in your 30s, 80 to 100 percent of the corpus will be put on equity or equity-related instruments while the rest would be put on debt or money market instruments. The equity exposure will be reduced with age.
- For those who cannot maintain investment discipline, the tailor-made retirement schemes are good as these come with a lock-in period of at least 5 years that does not allow the investor to touch the money for a long period and not sell it.
- Additionally, this lock-in period can be problematic for those without regular income sources. The choice of investment ultimately depends on the type of investor you are, your risk appetite and your alternative investment choices to diversify risk.
- If you are still interested to make the most of the 80C exemption, you can still opt from the old retirement schemes that are still available in the market. For those with investment discipline, ELSS (Equity-Linked Savings Schemes) can help you enjoy the tax exemption under the section that you seek.