Bandhan Mutual Fund launches retirement scheme; should you invest?

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The scheme will follow a dynamic asset allocation (DAA)/balanced advantage fund (BAF) strategy. What sets a BAF apart is its ability to adjust the allocation between equity and debt, based on market valuations and economic conditions.

“We are following a balanced advantage and not growth strategy in our scheme because while growth has the potential to give higher returns on a risk-adjusted basis, especially for people moving from fixed-income to equity, a BAF may be more attractive. However, the underlying strategy in our retirement fund would be slightly more aggressive than in our own balance advantage fund,” said Vishal Kapoor, Chief Executive Officer, Bandhan AMC.

According to the fund house, which had an average AUM of Rs 1.18 lakh crore at the end of the April-June 2023 quarter, BRF’s lock-in period of five years would keep investors’ emotions at bay, encouraging them to remain invested for a reasonably long period and reap the compounding benefit.

The equity investment framework of BRF would focus on quality companies with a long-term growth trajectory and justified valuations.

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The minimum equity holding requirement of 65 percent would be maintained by investing in hedged equity allocation to ensure that the equity taxation eligibility is met.

On the other hand, the debt portfolio would be diversified across quality instruments like Government Securities, State Development Loans, Corporate Bonds, and Money Market Instruments.

The fund managers would be Viraj Kulkarni (equity portion) and Gautam Kaul (debt portion), while Nishita Shah will be managing the overseas investment portion of the scheme.

Notably, none of the existing retirement funds in the MF industry invest in overseas equities. BRF would be benchmarked against Crisil Hybrid 50+50 -Moderate Index.

How has the category fared?

Retirement funds are a relatively quiet category in the MF industry. Many fund houses have not chosen to launch these schemes. As of October 2023, there are 10 fund houses in India, offering 26 retirement funds and this category had an average AUM of Rs 21,012 crore, as of August-end.

Retirement-focused mutual fund schemes cannot be compared with one another because their underlying asset allocations can be vastly different. For example, the largest scheme in this category -- UTI Retirement Benefit Pension (assets of Rs 4,004 crore as of August end) -- tilts heavily on the debt side.

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On the other hand, the second-biggest scheme, HDFC Retirement Savings Fund-Equity Plan, doesn’t have a debt component and invests 87 percent in equities.

This difference in strategy gets reflected in the divergence in fund performance. For example, HDFC Retirement Savings Fund-Equity Plan has delivered 18 percent returns on a five-year basis, while UTI Retirement Benefit Pension has gained 9 percent during this period, according to ACE MF data.

However, investors should look at those schemes that match their own risk profile rather than going with the best-performing one.

What should investors do?

Investors can plan for retirement via standalone schemes such as large-cap, flexi-cap, and balanced advantage funds. However, schemes with a lock-in period and specifically earmarked as retirement fund can bring in extra discipline in an investor’s approach.

Ravi Kumar T V, Founder of Gaining Ground Investment Services, said: “Some investors might hesitate to lock in their money for five years. This period might look long, but when you do complete goal planning, retirement funds may actually do well because the fund manager is taking a very long-term view while building the portfolio. The fund manager is looking at a long-term structural business to participate in.”

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Also, keep in mind that it would be unwise to leave asset allocation in one product, because it is personal and specific to each investor.

“If you're investing in fixed income, you have to keep that part of your portfolio very liquid. One can diversify into lock in products like PPF but at least 50 percent of the debt part of your portfolio must be liquid. Also, it would be better to keep one’s equity and debt portfolio separate, mainly from a better risk management point of view,” said Rushabh Desai, Founder, Rupee With Rushabh Investment Services.

Hence, a one-stop shop (a single scheme) for your retirement goal is not enough. Moreover, new fund offers must be best avoided by retail investors as their performance as well as the portfolio construction of the scheme is not known.

Retirement planning has just too many variables and assumptions and a single misstep can prove to be costly. It is best to sit with your financial advisor to chalk out a holistic plan for your retirement. If you have a guiding hand and are disciplined that you won’t dip into your retirement corpus till you actually retire, a combination of existing equity and debt schemes is more than enough.

The new fund offer for Bandhan Retirement Fund opened on September 28 and will close on October 12.

To know more about the investment ascent in India with the nation’s leading financial pioneers, tune in to the Moneycontrol Mutual Fund Summit, 11th October 2023 in Mumbai, 3.50 pm onwards. Log on here for further details.

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