There's a lot of noise around retirement funds these days and the recent tax break for NPS has only elevated the decibel level further. While we focus on new developments in the retirement space, the industry's first notified pension fund - UTI Retirement Benefit Pension Fund - now with a 21 year vintage, continues serving over 12 lakh investors and delivering healthy returns through a hybrid portfolio. Srivatsa takes us through the industry's original retirement fund : its features, how it stacks up against NPS and the fund strategy that is enabling it to outperform benchmarks.

WF: What is the vintage of your UTI Retirement Benefit Pension Fund, what has been its returns history and how many investors does it serve today?

Srivatsa: UTI Retirement Benefit Pension Fund has a vintage of 21 years having been launched in 1994 as Industry's first Govt notified pension fund. Since then the fund has grown steadily both in terms of AAUM as well as number of investors into it. The fund has provided an exclusive investment opportunity to investors with a balanced portfolio of debt & equity towards retirement corpus building. The fund has generated a return of 11.34% (as of Dec 2014) since its inception. The fund has also outperformed its benchmark i.e. Crisil Debt Hybrid (60:40) on 3 yrs / 5 yrs time periods. No wonder the fund enjoys the trust of more than 12.47 lac investors as on Feb 2015.

WF: In what ways is NPS different from your UTI Retirement Benefit Pension Fund?

Srivatsa: NPS and UTI Retirement Benefit pension fund are different on various aspects. The difference exists on parameters like type of structure, asset allocation, cost, taxation and liquidity. However, Mutual Fund linked retirement fund are tax advantageous compared to NPS since NPS corpus at the end of 60 years of age, is taxable as it is categorized as EET (exempt on contributions made, exempt on accumulation but taxed on maturity). Further the compulsory buying of annuity to the extent of 40% in NPS at the age of 60 leave a little choice to investors. Annuities are taxable as per present tax laws whereas systematic withdrawals from investments in UTI Retirement Benefit Pension Fund are tax efficient. However, NPS offers additional tax benefits of Rs. 50,000/- and could be more suitable for those who are not in the highest tax bracket after retirement.

WF: Is there a provision for an annuity or a pension upon reaching retirement age? How does this work?

Srivatsa: UTI Retirement Benefit pension fund comes with an option for an annuity payment when investors turn 58/65 depending upon his age of entry into the scheme. Investors can opt to receive the accumulated investment in the form similar to annuity by redeeming the units over a period of time to be indicated by him/her. Investors have various choices to choose payment period i.e. Monthly, Quarterly, half-yearly or yearly.

WF: Is the asset allocation dynamically decided or is it fixed?

Srivatsa: The asset allocation under UTI RBP is fixed i.e. 60% - 100% (Debt) and 0% - 40% (Equity). However, the fund is managed dynamically within the stated asset allocation. The fund manager focuses on corporate debt and a portfolio of high quality credits ( A+ and above). Broadly the focus is on minimizing the credit risk based on overall debt market environment. The equity portfolio is managed in a multi cap style with a bias towards large caps ( 75%) and the balance in mid and small caps.

WF: How are the equity and debt components of the fund managed in terms of portfolio strategy? How does portfolio strategy of this fund compare with a typical NPS fund?

Srivatsa: The equity component is managed as a multi cap equity fund with a large cap bias. The selection of large cap is mostly on top down approach and is concentrated amongst the sensex and nifty stocks. The mid cap portfolio is sector agnostic and selection is based on the principles of growth at reasonable price (GARP). The portfolio comprises of 45-50 stocks.

The debt portfolio largely comprises of good quality corporate bonds with an average maturity of 4 to 5 years. Tactical exposure to G-Secs is also taken depending on the in-house views of G-Secs.

WF: What in your view are the key factors that inhibited higher sales traction for this product in the past and what are some of your plans to give this product more sales momentum going forward?

Srivatsa: We have seen a good sales momentum in the current year given the long term performance track record and market buoyancy. B 15 centres have contributed significantly to this trend and we look forward to ramp up the mobilization in T 15 and other centres through strong product branding and communication led initiatives. Also, the aim is to attract wider section of working population through a dedicated salary saving scheme or Micro Pension route.

WF: For investors who are considering retirement options from NPS, insurance and mutual funds sectors, what would you say is the key investment argument for them to consider this product?

Srivatsa: Success doesn't come from 'buying good things' but rather from "buying things well". "How much life insurance do I need" and "how much do I invest" cannot be solved in isolation. There is a need for holistic integration of life insurance products and tax savings products within the unified asset allocation framework. While evolving a plan one should be concerned not only with risk but also with returns. Finally, lack of optimal returns to meet your financial goals could result in longevity risk viz outliving one's investments. While insurance products help you in managing mortality risk, equity based mutual fund products which provide over a long turn returns above the inflation help you in tackling the longevity risk.

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