Pension funds are the best investment option to help individuals prepare for their golden years by providing them with a regular income stream post-retirement. With the right financial planning, pension funds can generate long-term growth and steady returns, ensuring that you have the financial security you need in your later years.
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This article will help you to understand all about a Pension fund and get the benefits of financial security and peace of mind.
What is a Pension?
A pension is a retirement benefit you get as a regular fixed income stream during your retirement years. To get a pension you invest in the best pension plans during your working years.
Learn More About a Pension:
You invest in a Pension Fund to get periodic pensions later.
An employer or employee, an individual, or the government may fund your pensions.
A pension is an important component of retirement planning for being a reliable and predictable source of retirement income.
The amount of the pension benefit depends on:
Your income
Length of service
Terms of the pension plan
Pensions may be subject to various risks affecting your retirement amount. These risks may involve:
Investment risks
Inflation risks
Longevity risks
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What is a Pension Fund?
A pension fund is a type of investment fund that is set up to provide retirement benefits to employees/ individuals of an organization/ government institutions/ private sector individuals.
Important Points to Know About a Pension Fund:
The contributions made to the pension fund are invested in various assets.
Examples: Stocks, bonds, real estate, and other investments generating returns over time
The accumulated contributions and returns work as retirement benefits to the members of the pension fund.
The payouts of this fund are usually in the form of a regular income stream after retirement.
Types of Pension Funds
There are multiple ways to categorize a retirement fund depending on various criteria. Let us learn about different types of Pension Funds from a list of tables.
Based on Eligible Members
Depending on the category of individuals who are eligible to buy the retirement plan, the types of Pension Funds are as follows:
Types of Pension Funds
Details
Open Pension Fund
Everyone is eligible to buy
Examples: National Pension Scheme (NPS), ULIP Plans and Mutual Fund Schemes
Closed Pension Fund
Limited to a certain category of people
Examples: EPF and Atal Pension Yojana (APY)
Based on the Type of Pension Fund Provider
The variety of a pension fund varies along with the fund security and other benefits depending on who is selling the pension fund.
The types of pension funds based on pension plan provider are as follows:
Types of Pension Funds
Details
Private Pension Fund
Offered by private companies
Regulated under private sector laws
Examples: Retirement Mutual Funds and ULIP Plans
Public Pension Fund
Offered by government institutions
Governed under public sector laws
Examples: National Pension Scheme (NPS) and EPF
Based on Pension Fund Payouts
A pension fund is also categorised based on the category of pension payout options in the following ways:
Contributions to a pension fund are eligible for tax benefits under Section 80C of the Income Tax Act, of 1961
Accumulated corpus is tax-free up to a certain limit
Portability
You can transfer their funds from one fund manager to another or from one scheme to another
This does not affect the continuity of your pension fund benefits
Annuity Options
Pension funds in India provide various annuity options to the subscribers post-retirement, for example:
Lump sum annuity option
Regular pension payments option
Deferred pension payment option
Benefits of Investing in a Pension Fund
Here is a list of the top benefits of investing in a pension fund in India:
Retirement Planning
A pension fund provides you with a disciplined and structured approach to retirement planning. It allows you to build a retirement corpus and receive a regular income stream after retirement.
Tax Benefits
Contributions to pension funds are eligible for various tax benefits under the Income Tax Act. This helps in reducing your taxable income.
Long-term Growth Potential
Best retirement funds offer long-term growth potential by investing in a diversified portfolio of assets. This opens up an opportunity to generate higher returns than traditional savings accounts.
Professional Management
Professional fund managers, having expertise in managing investments, manage pension funds. This can help you to achieve better returns on your investment.
Flexibility
Pension funds in India offer flexibility in terms of investment options, contribution amounts, and withdrawal options. This allows you to customize your retirement planning based on your needs and financial goals.
In Closing
Whether you are an employee of a large corporation or a self-employed individual, a pension fund is a crucial source of retirement income. It can help you to achieve financial security and peace of mind in your retirement years. This makes it a valuable investment tool allowing you to enjoy your retirement years without worrying about your finances.
A pension fund is a type of retirement plan for an individual in which the employee/ employer/ government/ individual contributes funds to a pool of investment assets to get a regular income of money after they retire. The investment assets could be stocks, bonds, and real estate.
What is an example of a pension fund?
Some of the top pension funds in India are as follows:
Determine your investment target as per your income and expenses
Choose among the best pension plans in India
Start to invest early
Save more and invest regularly
Get the benefits of tax savings
Diversify your investment assets
Assess and monitor your investments
Seek professional advice
Is a pension fund a mutual fund?
A pension fund can be created by investing in market-linked mutual fund schemes. Various insurance companies and National Pension Scheme provide the opportunity to build a pension corpus by investing in government securities/ debt/ equity/ hybrid funds.
˜Top 5 plans based on annualized premium, for bookings made in the first 6 months of FY 24-25. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in *All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs. ++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
Secure Your Retirement Today
Start Investing₹6,000/month
Get Pension₹60,000/month+
IncludingLife Cover
View Plan
+Standard T&C Applied
Insurers Offering Pension Plans
Tata AIA
Axis Max Life
Bajaj Allianz
SBI Life
HDFC Life
ICICI Prudential
Bharti AXA Life
Edelweiss Life
Kotak Life
Future Generali
PNB MetLife
Aditya Birla Sun Life
Aviva
Ageas Federal
Bandhan Life
Canara HSBC
IndiaFirst
Pramerica Life
Reliance Life
Sahara Life
Shriram Life
Star Union
View more insurers
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insurance product offered by an insurer.