PGIM India Mutual Fund launches retirement fund; should you invest?

The fund strategy will have a minimum allocation of 25 percent each to large-cap, mid-cap, and small-caps, which is in line with the investment mandate of multi-cap funds.

PGIM India Retirement Fund will have 75-100 percent exposure to equity and equity related instruments, 0-25 percent to debt securities and money market instruments and 0-10 percent to units issued by REITs and InVITs.

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The scheme would be managed by Vinay Paharia (equity portion), Puneet Pal (debt portion) and would be benchmarked against the S&P BSE 500 Total return Index (TRI).

As per the fund house, PGIM India Retirement Fund would primarily use a bottom-up approach to identify companies with sound management and good growth prospects and a top-down approach for macro and thematic analysis. The fund managers would select companies with stable or high growth with due consideration to valuation.

The scheme may also invest in turn-around companies.

About the category

Retirement-oriented fund is a well-established category with 28 existing funds on offer. However, the nature of funds within the category can vastly differ, which can in turn bring in differences between the returns delivered by these funds.

For example, the top performing in this category is ICICI Prudential Retirement Fund-Pure Equity Plan, which has delivered 59 percent returns on a one-year basis.

On the other hand, ICICI Prudential Retirement Fund-Pure Debt Plan has gained 6.6 percent on a one-year basis, as per data available with ACE MF.

The funds can vary from having an aggressive approach to a conservative investment strategy. Further, while some may have pure equity or debt, others may invest across asset classes.

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“Solution-oriented funds are great. The underlying portfolio and fund management matters for the long term when it comes to important milestones such as retirement,” said Ravi Kumar TV, Founder of Gaining Ground Investment Service.

What should investors do?

With a minimum of 75 percent in equities, PGIM India Retirement Fund may appeal to high-risk appetite investors.

Keep in mind the compulsory lock-in period of five years, inability of investors to switch schemes during the investment duration, even if a scheme underperforms its benchmark index, and comparatively lower long-term returns compared to more aggressive open-ended schemes, are notable drawbacks.

In case of investments made through Systematic Investment Plans (SIPs) in these schemes, each instalment is subject to a lock-in period of five years or till retirement age, whichever is earlier.

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Still, solution-oriented strategies are beneficial for those investors aiming to establish retirement or education funds for their children using mutual funds, but lack the expertise necessary for making decisions concerning fund selection, asset allocation, and portfolio rebalancing.

Fund houses can offer more than one retirement-oriented fund, which may suit a particular age group such as 40 years or 50 years. Therefore, investors should be mindful of their risk appetite and investment horizon before choosing a retirement plan.

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“Retirement fund is a good long-term investment vehicle and if somebody can do it with discipline and have a goal setting in place, it is a good category to be in. However, between a new fund or an existing fund, go with an existing fund. Investors should first watch the performance, look at the track record and then decide on an investment,” said Deepak Chhabria, Chief Executive Officer & Director of Axiom Financial Services.