For today's aspirational families, "retire peacefully" is no longer a goal that resonates - "retire in style" is what defines their retirement aspirations much better. HDFC MF has created an impactful video that captures RIS - the new mantra for retirement planning.
In order to retire in style (RIS), families need to start planning early, invest wisely and stay invested till retirement. Solutions like HDFC MF's new Retirement Savings Fund offer a great way to achieve the new age aspiration of "Retire In Style".
The long term orientation of the product structure, flexibility of switching asset allocations over time and a proposition that fits into people's natural tendency towards "mental accounting" make retirement savings funds a natural choice for retirement planning.
WF: In what ways does the product construct help investors save for retirement better than what they can do with regular open ended funds?
Kiran: Today, planning for retirement is necessary in the Indian context with the increasing life expectancy, lack of social security benefits as compared to other developed countries, possibility of any unforeseen expenses and inflation sinking the purchasing power. Further, joint families have become a thing of the past and today's retired individuals need to fend for themselves being well-planned financially.
When investors save for long term, they typically choose investment options like mutual funds, FDs, gold, etc. which form a common saving pool. Over the years, when any financial requirement arises, amounts get withdrawn from the common saving pool to discharge social responsibilities and to meet personal aspirations like buying a house, buying a car, foreign travel, kids' education/marriage and so on. Whatever amount remains is left for the retired life, as it comes last chronologically. As the common savings are not earmarked for any specific financial objective, investors may overspend,due to emotional reasons, for meeting various social / personal requirements till retirement, leaving inadequate corpus for retirement.
Since there is a mental accounting involved when it comes to saving for a particular purpose, it makes sense to save separately for a retirement corpus."Mental Accounting" is an economic concept as per which investors divide their current and future savings into separate, non-transferable portions affecting their consumption decisions and other behaviours. Hence, building a corpus that is specifically meant to provide pension during retirement is of utmost importance. The idea goes in sync with the old saying "Saving for a rainy day". This is where dedicated retirement funds come into picture.
Our experience with HDFC Children's Gift Fund, another goal-oriented product, also suggests that investors tend hold on to their investments for a long period of time, regardless of market cycles, when the money is earmarked for a particular purpose.
HDFC Retirement Savings Fund targets corpus that is intended for providing pension during one's retirement through regular savings into the three different investment plans in the Scheme. The three investment plans are Equity, Hybrid - Equity and Hybrid Debt that differ in the varying degree of equity and debt allocation and are suited for investors of different age group and risk profiles.In the course of one's saving years, when a situation arises requiring large amount of one-time spending, say for medical requirement or other social / personal requirements, we believe, he / she is expected to withdraw funds from a regular open ended fund or a bank deposit rather than touching a Retirement Fund that is mentally earmarked to provide pension.
WF: The fund industry's key competitor in the retirement savings space is ULIPs. In what ways is this product a better solution than ULIPs?
Kiran: We would refrain from comparing our offering to a ULIP which is primarily an insurance product. HDFC Retirement Savings Fund ("the Fund") is a long-term investment vehicle (mutual fund scheme) that helps channelize one's monthly savings in a systematic manner to amass a corpus that one can withdraw when the regular income stops at the time of retirement.
WF: Have you considered a life insurance wrapper around this Fund to compete more effectively against ULIPs?
Kiran: Our offering is solely an investment vehicle targeting retirement corpus for individuals. Adding any other feature unrelated with the core objective of the offering would dilute the same.
WF: What is the lock-in period and what is the extent of flexibility in switching across the three plans within this Fund?
Kiran: The Fund has a lock-in period of 5 years from the date of allotment of units, during which the units cannot be redeemed or switched out. Upon completion of the lock-in period of 5 years, the units can be redeemed with an exit load of 1% till the age of 60 for an investor. After completion of 60 years of age, the investor can redeem the units without any exit load. Switches are not allowed during the 5 year lock-in period. Any switches between the three plans of the Scheme after the 5 year lock-in will not attract any exit load, allowing an individual to alter the asset allocation as he/she moves from one life stage to the next.
WF: What will be the equity and debt management strategies for this Fund? Which of your equity and debt schemes will they most closely resemble?
Kiran: Under normal circumstances, the three different investment plans under the Scheme will have different asset allocation among equity and debt as below:
Equity Plan: The equity exposure is expected to be between 80% to 100%, rest in debt and money market instruments.
Hybrid Equity Plan: The equity exposure is expected to be between 60% to 80%, rest in debt and money market instruments.
Hybrid Debt Plan: The exposure to debt and money market instruments is expected to be 70% to 95% and the equity exposure is expected to be between 5% to 30%.
Within equity, the focus will be on businesses with superiorgrowth prospects and good management that are available at a reasonableprice. Within debt, the Fund will retain the flexibility to invest across all the debt and money market instruments of various maturities.
WF: In recent times, key industry players have vigorously promoted new launches in the retirement savings and saving for children spaces. Business results it appears, are falling short considering the effort put in. What more do we need to do to promote such need based solutions? What are you planning to do to promote your offering?
Kiran: The funds that are need based or goal based like retirement or children's education are simple products but have a strong potential for wealth creation in a risk controlled manner over the life of an individual. The awareness of the retirement funds among investors is increasing and they have a great potential to be a large mutual fund category primarily through SIPs. Since the funds targeting retirement savingsare long term in nature, it will take time for them to be of significant size. We believe, HDFC Retirement Savings Fund is not intended just for garnering assets through an NFO, but would be regular saving tool for individuals for 25 or 30 years down the line. The Fund is suitable to every working individual whether employed or self-employed.
This being a retail offering, we are trying to reach out to the length and breadth of the country using our branch and the vast distribution network.We are also actively using print media and digital campaign to promote the Fund.
WF: What is the key message you would like distributors to take to investors, which can help build awareness of and interest in retirement savings solutions from our industry?
Kiran: India is a relatively young country as compared to many large nations of the world and it is important to take the savings habit seriously. While years of working is on a decrease on an average and the years of retired life is on the increase. One needs to plan for at least 30 years of retired life and be ready financially. "Retire peacefully" used to be the tag line a generation ago, now it is "retire in style" as the standard of living and the overall aspiration levels of people have increased by leaps and bounds. So, one needs to start the saving habit through either lump sum investments or SIPs. Accumulate a sizeable corpus at the time of retirement. Post retirement, one needs to identify a reasonable standard of living and the monthly costs associated with it. One needs to make sure the standard of living is either maintained or improved post retirement and plan accordingly.HDFC Retirement Savings Fund has the choice of 3 plans that help manage risks across the investors' life cycle. Further, the option of systematic withdrawals from the Fund works like a pension in a tax efficient manner. To conclude, the three mantras of retirement savings are:
For details, investors should refer to Scheme Information Document of the Scheme.
DISCLAIMER: The views expressed are author's own views and not necessarily those of HDFC Asset Management Company Limited (HDFC AMC). The views are based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The information/ data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on the current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in future. Neither HDFC AMC and HDFC Mutual Fund (the Fund) nor any person connected with them, accepts any liability arising from the use of this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.
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