Mutual Fund or Pension Plan?Best option for Retirement Planning \r\nMutual Fund or Pension Plan?Which one is a best option for retirement planning.Very often I receive this question from my blog readers.\r\nSo, today I have decided to discuss on Mutual Fund or Pension Plan?Best option for Retirement Planning.I am giving the needs of Retirement planning link below for easy reference.\r\n\r\nAre you retiring soon?Have you planned for your retirement yet?\r\n\r\nWorried for retirement fund creation?Mutual Fund or Pension Plan?Best option for Retirement Planning?Mutual Fund Vs Retirement Planning.\r\nAs I wrote earlier that we, the Indians are really very poor in making a sound retirement plan.Majority of salaried persons due to non planning for retirement have to compromise with post retirement life.Lack of financial planning and understanding sometimes force them to withdraw money from their one and only retirement fund i.e. Provident Fund.One must ensure to keep his PF accumulation intact for sunset years. But maximum salaried class people tend to withdraw it either for child's marriage,education or for buying a house for them.\r\nRetirement and pension plan are synonymous terms.Once we are thinking for a retirement plan, we tend to go for pension plans. There are numerous pension plans in India.Do they suit you best?Have you ever questioned yourself ?Have you ever checked the returns of the pension plans?I think for most of people the answer will be a big "No".\r\nWhile planning for retirement we must keep in mind that it goes through two phases viz; 1.Accumulation phase and 2.Distribution phase.\r\n\r\n\r\n\r\n \tAccumulation phase: During this phase the investor invests regularly over a long period of time for retirement;\r\n \tDistribution phase: During this phase the investor starts receiving regular income, which may be on monthly,quarterly,semi annually or annually basis.This income payout is based upon the accumulated value when payments begin.\r\n\r\nBased upon risk profile,age of the investor and time horizon of the investment ,an investment can be classified as below:\r\n\r\n\r\n\r\nAge Bracket\r\nInvestment Risk Profile\r\n\r\n\r\nUnder 30 years\r\nAggressive\r\n\r\n\r\n30 to 40 years\r\nModerately Aggressive\r\n\r\n\r\n40 to 50 years\r\nBalanced\r\n\r\n\r\n50 to 60 years\r\nModerately Conservative\r\n\r\n\r\nAbove 60 years\r\nConservative\r\n\r\n\r\n\r\nOne should move his investments to a lesser risk portfolio once the retirement is closer. \r\nOne must adhere to this standard principle of retirement planning strictly.\r\nPension Plan or Mutual Fund? Which one to choose?\r\nPension Plans as a tool for retirement plan\r\nIn pension plans a person pays regular premium till his retirement and then receives regular payment from the accumulated corpus as pension or annuity.Retirement plans or Pension Plans are primarily investment plans in which an individual invests till he retires and start receiving pension once he retires.Also, there is a provision to withdraw 1\/3rd of the total accumulated corpus once he has retired to meet other financial goals and balance amount can be received as pension.\r\nMutual Funds as a tool for retirement plan\r\nOn the other hand Mutual Funds are very tax efficient.After the Budget 2018, with introduction of 10% LTCG on Mutual Funds, still they are very suitable product for retirement purpose.Also, the income accumulated upto the grandfathered date 31st January 2018 is tax free.The income generated from mutual funds over and above \u20b91 Lakh is chargeable to LTCG @10%.Still this is a safe bet and more tax efficient as compared to pension plans.There is no hidden charges or high administrative charges unlike conventional or Unit linked pension plans.One can invest in Mutual Funds as per his own choice.The mantra is the early you start the more you grow.\r\n\r\nPower of compounding ensures that one can build a huge corpus for his retirement.\r\n\r\nNotably,one can choose even 100% exposure to equity for long time investments .This can even fetch more than your expected corpus.\r\nOne must keep in mind that while investing in MF for retirement purpose, the risk profile,age and investment period can play a significant role during the accumulation phase.Prudentially,one should transfer his equity investments in less risky instruments gradually once retirement age is nearer.\r\n\r\nOnce the individual attains retirement age, he can choose one of the following option to get monthly pay outs.\r\n\r\n \tPension option: Receive regular income till perpetuity and leave the accumulated investment in the fund;\r\n \tLump sum option:Withdrawal of full value and invest as per own choice;\r\n \tCombination option:Withdraw a partial option and continue to receive monthly pay outs from the remaining corpus;\r\n \tFlexible option: For receiving accumulated principal and dividends set a fixed amount per month for withdrawal over a certain period of time \r\n\r\nFinal Word\r\nMutual funds as retirement plan are a very good option for investors who seek to plan for their golden years.I personally, suggest Mutual Funds over Pension plans due to wide variety or range of products managed by professional experts, diversified portfolios,low cost products,liquidity,transparency,no hidden charges and full watch by a strong regulator SEBI.