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IN Tax 2024

iCalculator™ IN: Pension Fund

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Pension funds refer to retirement or pension schemes offered by fund houses or providers of mutual funds.

Pension Funds in Detail

Pension funds are a retirement savings option, in addition to the Government's National Pension System or the annuity plans offered by insurance companies. Pension funds invest in a mix of equities and debt, and thus provide a balance of growth and stability. Upon reaching the age of 58, you can withdraw these funds either at once or in the form of regular dividends.

Tax treatment of pension funds

Pension fund investment of up to ₹150,000 per year are eligible for tax deductions. If your income is ₹850,000 and you invest ₹100,000 in pension funds, your taxable income will be ₹750,000.

Pension Fund Options

Presently, there are two pension funds available in the market – Franklin India Pension Plan and UTI Retirement Benefit Pension Fund. Let's look at both of them in detail.

Franklin India Pension Plan

Under this plan, 40 per cent of savings are invested in equities and the remaining 60 per cent in fixed-income securities. The scheme has a lock-in period of 3 years. If you withdraw money before the age of 58, you have to pay a 3 per cent exit charge. For withdrawals after the age of 58, there is no exit charge. Upon reaching 58 years of age, the investors can opt for a pension option, which provides them a regular pension, or a lump sum option where they can withdraw the entire money. There are two other withdrawal options -- a combination option and a flexible option.

UTI Retirement Benefit Pension Fund

The fund invests 40 per cent in equities. The remaining 60 per cent is invested in fixed income investments such as bonds, non-convertible debentures, and other debt instruments with low-to-medium risk. As of October 2014 each unit of this fund costs nearly ₹18. Minimum investment is ₹500. You have to pay exit fees for any withdrawals before 5 years. If you withdraw within 1 year, the exit load is 5 per cent, and for withdrawals between the first and third year the exit load is 3 per cent. For withdrawals between the third and fifth year, the exit charge is 1 per cent. There is no exit charge for withdrawals after 5 years. The fund was launched in 1994.

Before investing in pension funds, it is advisable to check details such as past performance, investment portfolio, risks, etc. You can check the performance of these funds on sites such as moneycontrol.com.

Use our tax calculator to check the impact of pension funds on your taxable income.

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