Axis Mutual Fund is launching a dedicated retirement product, Axis Retirement Savings Fund, through a new fund offer that opens on 29 November. Since it's an open-ended fund, you can subscribe to it even after the offer closes on 13 December.
The fund will have a lock-in of five years or until the age of 58, whichever is earlier.
The scheme is also offering a term insurance as a free add-on to its monthly SIP (systematic investment plans) investors, subject to certain conditions. However, the lock-in or the insurance component does not make the scheme eligible for a tax deduction.
There are three options to choose from in the scheme—aggressive, dynamic and conservative. They will have equity exposures of 65-80%, 65-100% (managed dynamically) and 40%-80%, respectively. You can also switch between the plans at a later date. Though there is no exit load, any switch to other options will have tax implications on your gains.
How does the insurance component work?
Investors who complete 12 SIPs in the fund will be eligible to get term insurance that will cover the remaining SIP instalments for the period you have signed up for. To get this, you need to have signed up for SIPs for at least three years. For example, if you have signed up for a 10-year SIP and you pass away after paying SIPs for two years, the fund house will pay out an amount equivalent to the SIPs of the remaining eight years to your nominees. Your nominees are free to use this money in the way they see fit and do not have to reinvest it in the same fund. However, the insurance payout has a maximum limit of ₹50 lakh. In addition, if you default on three consecutive SIPs after paying the first 12 instalments, the insurance cover is taken away. Also, note that since the SIP cover will vary depending on the number of instalments left, it may not be more than 10 times the annual premium (paid by the fund house on behalf of the investor) and, hence, may not be tax-free under Section (10)(10)(D) of the Income-tax Act, 1961.
Products that combine insurance and investment are never recommended. They don’t work when they come from either insurance companies (unit-linked insurance plans or endowment plans) ot when they come from mutual funds. Insurance is about protecting your family in case of your demise and should take into account your income holistically. There is no reason why your insurance should be tied to one particular SIP. “I would rather recommend a mutual fund with an established track record. It is important for a (retirement) fund to have an 80C deduction to compete with a product like the National Pension System," said Viral Bhatt,a Mumbai-based independent financial adviser.
However, investing in a retirement product may psychologically keep you away from withdrawing from the fund prematurely (since it is put in a dedicated retirement bucket).