In the last column, we concluded that the Retirement Fund offerings by Asset Management Companies are not strictly comparable as their Asset Allocation mix and their investment objectives are not uniform. And it is thus that I must add the caveat that while this column features funds that form part of this category, they lack comparability.
The four retirement funds under the spotlight in this column are Tata Retirement Savings Fund-Conservative Plan, HDFC Retirement Savings Fund-Hybrid Equity Plan, UTI Retirement Benefit Pension Fund and Nippon India Retirement Fund-Wealth Creation Scheme. Tata Retirement Savings Fund-Conservative Plan is an open-ended retirement scheme that has a lock-in of 5 years or till retirement age, whichever happens earlier.
Its asset allocation mix is 30 per cent equity and 70 per cent debt. Its equity portfolio comprises primarily of banks besides consumer goods, pharmaceuticals and petroleum products. Its debt portfolio comprises 50 per cent in Government Securities with the rest in ZCBs, NCDs and State Development Loans. This fund has delivered a compound annual growth rate (CAGR) of a little over 8 per cent over a 5-year period.
HDFC Retirement Savings Fund-Hybrid Equity Plan is an open-ended scheme that invests in a mix of equity and debt instruments. Its equity to debt allocation mix is 66:34. The fund’s equity investments are primarily in large caps with sectoral allocation to Financials, Energy and Technology. Its debt holdings include Government of India (GoI) securities, NCDs, Debentures & bonds. This fund does not yet have a 5 year track record, and has delivered a CAGR of approximately 4.5 per cent over 3 years.
UTI Retirement Benefit Pension Fund is one of the oldest funds in this segment and it has an equity to debt asset allocation mix of 40:60. The equity portfolio comprises 68 per cent in large caps, 23 per cent in mid caps and 9 per cent in small caps. Its debt holdings include 38 per cent in long term debt and 20 per cent in Government securities. This fund has delivered a CAGR of around 6 per cent over a 5-year period. Nippon India Retirement Fund-Wealth Creation Scheme is a predominantly equity fund.
Its asset allocation thus is around 95 per cent in equity with the balance being in cash & cash equivalents. Of its equity holding almost 76 per cent is in large caps , 15 per cent in mid caps and around 9 per cent in small caps. Its sectoral allocations are predominantly in Financials, Technology and Construction. This fund has delivered a CAGR of around 6 per cent over a 5-year period. Given the growing life expectancy in India and the new funds that have entered this space, it is bound to evolve. The minimum time frame for evaluation of these funds will have to be 5 years with 7-10 years being more ideal. Once that is in place, it will be a lot easier to distinguish the men from the boys.
Ashok Kumar heads LKW-India. He can be reached at ceolotus@hotmail.com