Pension funds are another name for retirement mutual funds. These are funds that allocate a part of the investment to the investor’s savings for retirement. Investors have several choices for saving for retirement, such as government pension plans, insurance policies, and so on. Aside from conventional ways, mutual funds have begun to address necessary retirement savings. A pension or a retirement fund allows investors to prepare for their retirement in such a way that their necessities are fulfilled when they stop working.
What is the function of a pension fund?
Most pension funds provide returns in the form of a monthly annuity or a lump sum. A monthly retirement income is a fixed payment that, in most situations, includes inflation safeguards. Lump-sum payments help investors to withdraw the entirety of their accumulated wealth just at the time of termination.
Characteristics of pension fund
Pension plans are less risky than other types of retirement plans, making them an excellent investment option for retirement. Mutual funds have begun to provide hybrid pension schemes. In these plans, equity exposure is typically kept low, ranging between 40 and 50 per cent. Because of the levy of charges and the huge exit load in early withdrawal, liquidity in such pension funds is typically low. Retirement mutual funds typically have a five-year lock-in period, whereas ELSS funds get a three-year lock-in period.
Mutual fund pension schemes are an amazing way to plan for retirement. These funds have quite a five-year lock-in period, far less than the govt’s Pension Plan Scheme’s 15-year lock-in period. Such funds could well provide you with reasonable returns while also preparing you for retirement.