We are all aware of the Public Provident Fund (PPF), Employees’ Provident Fund (EPF), National Pension Scheme (NPS) and LIC’s pension plans to help us save for our retirement. Mutual funds, in the industry’s early days, targeting retirement savings. Launched in December 1994, UTI Retirement Benefit Pension Fund (UTI RBPF) was one such scheme. Recently, it completed 26 years. We will discuss in this article what it is about and whether it’s worth to invest in this fund .
UTI RBPF is an open-ended fund. Your investments are locked in for 5 years or till your retirement age, whichever is earlier. It invests in a mix of equity (up to 40% of its corpus) and debt instruments. Your investments are eligible for income-tax deduction under Section 80C, up to a maximum amount of ₹1.5 lakh, though you could invest more. This is different from a typical equity-linked mutual fund scheme (ELSS) that also offers Section 80C tax deduction. ELSS schemes come with a three-year lock-in. Once the unitholder completes the lock-in of five years or turns 58, she can either withdraw her money or opt for a systematic withdrawal plan to ensure regular payments during retirement, though returns are not fixed, as they are market-linked.
Till 2011, apart from UTI and its closest peer Franklin India Pension Plan, there wasn’t any other retirement focussed mutual fund scheme. From 2011 onwards, the capital market regulator, Securities and Exchange Board of India (SEBI) allowed mutual funds to again offer retirement-specific schemes. The likes of Tata Mutual, Nippon India Mutual and HDFC Mutual funds entered the fray. ELSS schemes, too, grew in popularity over the years and the shorter lock-in of three years also helped. But UTI MF did its bit to popularise the scheme. Under the helm of UK Sinha, former head of UTI mutual fund, UTI mutual fund took UTI RBPF to the unorganised sector and tied up with several non-government organisations (NGOs) and banks to get their members to invest in this scheme.
At present, the scheme’s assets are worth ₹3,118 crore, with over 21 lakh of folios.The scheme invests up to 40% in equities, with a bias towards large-cap stocks. As per the latest portfolio of December 2020, around 66% of the equity portion was invested in large-caps, 22% in mid-caps and 12% in small-caps. With the cap of 40% on equities acting as a risk mitigation tool and the rest being invested in debt securities, the scheme has a well-diversified portfolio. It is the right blend of debt & equity securities in a portfolio that brings stability.
The top sectors in the scheme’s portfolio are Banking, Software, Finance, Consumer Non-Durables and Pharmaceuticals. ICICI Bank, Infosys, L&T, SBI, Axis Bank, Vardhman Textiles and Federal Bank have been part of its holdings over the long term. On the debt side, the fund manages its duration strategy, dynamically by investing across maturities, in corporate bonds, government securities and money market instruments. However, allocations made to relatively lower-rated bonds eying on higher yields had backfired on the fund. The scheme was hurt due to investments made (though marginally) in distressed debt assets issued by DHFL, Idea Cellular and IL&FS.
Rolling returns are a better way to assess a fund’s performance as they cover multiple entry and exit points. We took the scheme’s five-year rolling returns over a period of 15 years. UTI RBPF gave 9.1% returns while Franklin India Pension delivered 9.8%. The conservative hybrid mutual fund category delivered 8.6%. Given its high allocation to debt, the fund doesn’t appeal much to young and millennial investors but this is advisory to invest in such fund and not to touch its corpus till retirement.