Mutual funds may enter pension space

Sebi may allow schemes with five-year track record to offer plan

Market regulator Securities and Exchange Board of India Sebi is contemplating allowing all mutual fund schemes with a track record of five years or more to offer pension plans.

Mutual funds already have equity,balanced and fixed income funds in the market that are retail products. There is a thinking to allow mutual funds to offer a pension plan to all schemes with a history of five years or more, said a source close to the development.

While the investment in pension funds would not be available for withdrawal in between,it will only have a growth plan and not a dividend plan as the pension corpus is meant to accumulate.

UK Sinha,chairman,Sebi has been asking mutual funds for over a year to launch their pension schemes but no fund house has come forward.

Sebi recently said that it is in talks with tax authorities for tax benefits available for other pension products to be extended to pension plans of mutual funds.

Nothing prevents an asset manager to seek an approval for a mutual fund MF scheme that has pension as a theme. We are in touch with tax authorities for tax benefits and we have been given to understand that whenever DTC comes in,the treatment of pension schemes managed by MFs and others will be similar, said Sinha last week.

Experts say that if existing schemes of MFs have a pension option it will be far better than a New Pension Scheme and other such options as mutual funds not only have a long track record but also a strong brand name and a distribution network in place.

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The funds however must have portability because if you invest in the scheme for a lifetime and the scheme starts to underperform then one must be able to switch, said an industry insider.

However,Sebi may have to bring in some structural changes for the pension plan.

Sebi law says that all products must provide liquidity but it will have to exempt pension plan from this and such an exemption is already available to

capital protection-oriented schemes, said an expert adding that if this pension plan structure comes then overnight one would have so many choices with credible history for their retirement planning.

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Mutual funds though may not be allowed to charge high expense ratio and Sebi is expected to put some limit on expense that it cant be more than 1 or 1.5 per cent since it is a pension plan said the source.

Pension plan

Investment in pension funds would not be available for withdrawal in between and it will only have a growth plan not a dividend plan

UK Sinha,chairman,Sebi has been asking mutual funds for over a year to launchpension schemes