India has the world’s largest youth population, with about 66 per cent of the people now estimated to be under the age of 35. As the economy is growing, the aspirations, too, are rising. People are spending more, buying new cars, the latest gadgets and travelling more frequently. But, perhaps, there is also the need to think about planning for retirement.
This is extremely important, especially if you are not working in the government and there is no guaranteed pension or social security that you can depend on once you hang up your boots. You have to carefully consider how much money you would need post retirement and that corpus has to last for 20-30 years. You also need to take into consideration the annual inflation across goods and services.
Retirement planning is not an easy task, but saving up for retirement need not be too challenging. Many asset management companies today offer retirement funds as part of their broader bouquet of mutual fund schemes.
Simply put, retirement funds or pension funds are solution-oriented schemes where you invest and build a corpus for your retirement needs. These schemes are like your normal mutual fund schemes, investing in equity as well as fixed income instruments like corporate bonds and government securities. But, there is one key difference.
“Funds in this category have a lock-in for at least five years or till retirement age, whichever is earlier,” pointed out Jiral Mehta, senior manager-research at FundsIndia.
Also, typically, as your retirement age nears, some retirement funds may shift allocations towards lower-risk debt assets to protect the corpus that has been generated over time.
Retirement funds have been gaining traction in recent years. According to Icra Analytics, the assets under management of retirement mutual funds has increased more than three times in the last five years. AUM rose from Rs9,800 crore in June 2020 to Rs31,973 crore in June 2025.
The total number of folios under such schemes has increased 18.21 per cent to 30.09 lakh in June 2025, up from 25.46 lakh in June 2020. As investor interest has grown in such funds, the number of schemes, too, has gone up from 24 to 29.
“Equity mutual funds have captured significant inflows due to optimism about market recovery and growth, which is appealing for long-term retirement portfolios,” said Ashwini Kumar, senior vice-president and head, market data, at Icra Analytics. “This apart, enhanced transparency and investor protection regulations have boosted investor confidence in mutual funds as a retirement vehicle.”
Let us understand the construct of some of the retirement funds.
Typically, these funds, like normal mutual fund schemes, will invest in equity and debt. Some of them offer pure equity or debt options, while others are hybrid, investing in a mix of equity and debt.
In UTI Retirement Fund, typically 60 per cent of the corpus is in debt and the rest in equity. ICICI Prudential’s Retirement Fund has multiple scheme options from pure equity to pure debt and conservative or aggressive hybrid, depending on one’s risk-taking appetite.
Aditya Birla Sun Life Mutual Fund takes a slightly different approach based on age when it comes to retirement funds. Aditya Birla Sun Life Retirement Fund 30s plan, for instance, primarily invests in a well diversified portfolio of equity and equity-related instruments.
The 40s plan adds a marginal allocation to debt, while in the 50s plan, investment in debt instruments gets predominant with a small equity portion and then the 50s plus debt plan, as the name suggests, invests in debt and money market instruments. It offers a trigger facility for seamless transition of risk profile and asset allocation.
Nippon India’s retirement fund offers a choice between a wealth creation scheme and income generation scheme. As the names suggest, the wealth creation scheme is tilted towards largely equity while the income generation is debt heavy.
Irrespective of the fund or scheme, the goal is to build a corpus for retirement, and hence the longer term lock-in. Open-ended schemes have no such lock-in and therefore one can enter and exit at any time. One may argue that one could plan for retirement investing in normal open-ended funds as well. But, retirement funds and the associated lock-in can be useful for someone who doesn’t have the patience or the risk appetite to stay invested when markets fall.
“You can treat a normal fund like a retirement fund,” noted Anant Ladha, founder of Invest Aaj for Kal. “But, over time, I have also realised that if someone has invested in a specific category like retirement fund, the tendency would be to not touch the investment before retirement. A lot of people have anxiety, especially during bad days of the market, and then may look at redeeming at least some of their funds. The solution to that anxiety is retirement fund and people are making money in these funds.”
The returns retirement funds generate will depend on the proportion of the individual scheme investments. For instance, a pure equity scheme will obviously deliver much higher returns than a scheme that is debt heavy.
These funds usually attract salaried professionals, especially those in the 25-40 age group, who start early through SIPs to take advantage of compounding, and the fund lock-in enforces discipline, noted Mehta of FundsIndia. But, that lock-in can also be a disadvantage. “Due to the five-year lock-in, there is a lack of exit flexibility in case of underperformance or any undesirable changes in the fund, like fund manager exits or strategy changes,” said Mehta.
While these are labelled as retirement funds, people need not restrict themselves to these funds for retirement goals, said Mehta. “Investors are better off investing in diversified equity funds with a proven long-term track record for their retirement goals,” she said. “Those looking for tax benefits on top of capital growth can prefer proven funds from the ELSS (equity-linked savings scheme) category, which has a shorter lock-in period of three years.”
Irrespective of the path, planning for income stopping and investing over the long term will determine whether you lead a happy or an anxious post-retirement life.