Launch of a retirement plan by Bandhan Mutual Fund: Should You Invest?

 Launch of a retirement plan by Bandhan Mutual Fund: Should You Invest?

The dynamic asset allocation method, which Bandhan Retirement Fund will employ, will modify the allocation of stock and debt in accordance with market valuations and prevailing economic conditions. Can you achieve your retirement objectives with just one plan?

A retirement fund has been introduced by Bandhan Mutual Fund, the tenth-largest asset management firm (AMC) in India. With a long-term outlook, it will make investments in a combination of debt and equity.

Retirement funds are goal-oriented plans that bind investments for a minimum of five years or until retirement age, whichever comes first.

What does the plan provide?

The dynamic asset allocation method used by Bandhan Retirement Fund (BRF) will give investors the chance to benefit from the growth of the equities market while protecting them from potential drawbacks in the event of a decline.

The plan will employ a balanced advantage fund (BAF)/dynamic asset allocation (DAA) method. A BAF is unique in that it can change the ratio of equity to debt dependent on market valuations and economic conditions.

We are using a balanced advantage fund (BAF) rather than a growth approach in our scheme because, while growth may have the potential to offer higher returns on a risk-adjusted basis, a BAF may be more alluring for investors switching from fixed-income to equities. However, compared to our own balance advantage fund, the underlying strategy in our retirement fund would be a little bit more aggressive, according to Vishal Kapoor, CEO of Bandhan AMC.

The fund company asserts that BRF's five-year lock-in term will let investors stay engaged for a reasonable amount of time so they may profit from compounding, with an average AUM of Rs. 1.18 lakh crore at the conclusion of the April-June 2023 quarter.

The equity investment strategy of BRF would concentrate on high-quality businesses with sustainable growth and fair market values.

To maintain the minimum equity holding requirement of 65 percent and to ensure that equity taxation eligibility is met, investments in hedged equity allocation would be made.

The debt portfolio, however, would be diversified among high-quality securities like government bonds, state development loans, corporate bonds, and money market instruments.

Viraj Kulkarni and Gautam Kaul would be the fund managers for the equities and debt portions, respectively, while Nishita Shah would be in charge of the overseas investment element of the program.

Notably, none of the retirement funds currently active in the MF sector participate in foreign stocks. Benchmarking for BRF would be done against the Crisil Hybrid 50+50 -Moderate Index.

How has the group performed?

In the MF industry, retirement funds are a very unassuming segment. Many fund houses have refrained from introducing these programs. There will be 10 fund companies in India offering 26 retirement products by October 2023, and as of the end of August, this category's average AUM was Rs 21,012 crore.

Retirement-focused mutual fund schemes cannot be compared to one another because of the wide variations in their underlying asset allocations. For instance, UTI Retirement Benefit Pension, the largest program in this category, which had assets of Rs 4,004 crore at the end of August, leans significantly toward debt.

On the other hand, the second-largest plan, HDFC Retirement Savings Fund-Equity Plan, invests 87 percent of its assets in equity and has no debt component.

The gap in fund performance is a result of this variance in strategy. According to ACE MF data, the HDFC Retirement Savings Fund-Equity Plan, for instance, has generated 18% returns over a five-year period while the UTI Retirement Benefit Pension has increased by 9%.

Instead of choosing the scheme with the best performance, investors should consider those that meet their personal risk profile.

How should investors behave?

Retirement planning can be done by investors using stand-alone programs like large-cap, flexi-cap, and balanced advantage funds. Schemes with a lock-in term and those are officially designated as retirement funds, however, might add more discipline to an investor's strategy.

Gaining Ground Investment Services' founder, Ravi Kumar T. V., stated: "Some investors might be hesitant to lock up their money for five years. While this period may seem lengthy, retirement funds may actually perform well when you complete your goal planning because the fund management is creating the portfolio with a very long-term perspective. The fund manager is searching for a structural long-term business to invest in.

Also keep in mind that since asset allocation is individualized and unique to each investor, it would be foolish to leave everything in a single product.

"You must keep that portion of your portfolio relatively liquid if you invest in fixed income. The debt portion of your portfolio must be at least 50% liquid before you can diversify into lock-in products like PPF. Additionally, keeping one's equity and debt portfolios separate would be preferable, primarily from the standpoint of better risk management, according to Rushabh Desai, founder of Rupee With Rushabh Investment Services.

Therefore, a one-stop shop (one scheme) is insufficient to achieve your retirement goal. Retail investors should also steer clear of new fund offers because both their performance and the scheme's portfolio structure are unknown.

A single error in retirement planning can be quite expensive since there are simply too many assumptions and variables involved. It is best to get down with your financial advisor and develop a comprehensive retirement plan. A combination of current equity and debt programs is more than sufficient if you have a guiding hand and are disciplined enough to wait until you actually retire before taking any withdrawals from your retirement corpus.

Bandhan Retirement Fund's new fund offer went live on September 28 and will end on October 12.