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What are the various Pension Plans in India? How to invest in Pension Funds?

Updated on March 1, 2016

What are the various Pension Plans in India? How to invest in Pension Funds?

An ideal Pension product should enable people to invest their money based on their financial needs, investment priorities and risk appetite. Age alone is not the factor while joining a pension plan. Retirement/Pension plans provide you financial security when your full-time professional income ceases, so that you can still meet all your needs and continue to live with pride. An ideal pension product should serve as a safe investment plan as well as offer attractive tax-free returns. Pension plans come in various types such as Traditional plans, immediate annuity plans, Unit-linked pension plans etc

In India, the most popular savings plan is the Provident fund. The employee provident fund (EPF) is mandatory for all employees whose salary is less than Rs. 15000 per month while Public provident fund (PPF) is open to all Indian residents. In EPF, you can withdraw the money after retirement or resignation. In case of PPF, the amount can be withdrawn upon maturity, which is 15 years after the joining date. Both EPF and PPF offer a decent fixed return along with Tax exemption benefit. For most people, these funds are a safe and secure investment.

The next is endowment Plans. Here the investor pays a monthly or yearly for a fixed period. If he/she dies during the plan period, the nominee will be paid the full amount. Else, the amount can be claimed on maturity.

Unit Linked Pension Plans (ULPP): They are similar to ULIP (Unit linked investment plans). A part of the premium is invested in the market, thereby providing market-linked benefits to the investor.

Life insurance Corporation of India (LIC) offers various pension plans like Jeevan Akshay Vi, New Jeevan Nidhi, New Jeevan Dhara etc. SBI and HDFC also offer pension plans in India. Many of these are linked to the market. Atal pension Yojana is a pension scheme launched by government for unorganized sector employees.

New Pension Scheme (NPS): The New Pension is an innovative formulation of the Indian government to enable citizens to invest in funds that are market-linked. The scheme has 2 tiers. Tier- I is a basic retirement plan account which doesn’t permit withdrawal of funds till retirement. Tier-II account allows withdrawal prior to retirement under certain circumstances. Investors can choose different asset classes such as Equity market instruments, Government securities and other fixed income instruments. They are ideal for long term investment. NPA is regulated by the Pension fund regulatory and Development authority (PFRDA). Under this, various fund managers are allowed to manage the funds collected under NPS.

On retirement, subscribers are required to invest at least 40% of their pension fund in an annuity and the remaining 60% can be redeemed as a lump sum. In the case of government employees, the annuity provides for pension for the lifetime of the employee.


Tax benefit: The government offers an additional tax benefit of Rs 50,000 per year for investment in NPS under section 80CCD. This benefit is over and above the Rs 1.5 lakh limit provided under section 80C.

Pension Fund Companies in India: Pension funds by MF (Mutual funds) companies are the best avenues to invest money. At Present, there are only two pension funds in India run by Asset management companies (AMC) that are treated as pension plans in India. One is Templeton Pension plan and UTI Retirement Benefit Pension Fund. These funds invest up to 40% in equities and the rest in debt instruments. The retirement age is fixed as 58 years

Popular Pension plans in India: Companies like LIC, SBI Life, HDFC Life etc offer attractive pension plans in India with varied features, apart from the NPS (New Pension Scheme). Compare various plans before opting for one. You could consult a financial/retirement consultant as well

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