Retirement is among the goals most saved for and perhaps the largest by corpus size. Though there is a widespread understanding of the need to save for our silver years, very few do so systematically. Another critical aspect of saving for retirement is to do it independently of other financial goals so that there is a clear focus on investments.
While investing for retirement can be done via regular diversified equity mutual funds, there are also products dedicated specifically to retirement purposes. Most fund houses tend to bring out hybrid schemes dedicated towards retirement.
Baroda BNP Paribas Retirement is yet another fund that was launched recently and is open for subscription till May 22. Many of the older fund houses have multiple hybrid schemes with different asset allocation patterns that are dedicated to retirement.
The new fund’s investment style is equity-oriented. Read on to make an informed decision about the NFO.
What the fund is about
Baroda BNP Retirement fund will invest 65-80 per cent of its portfolio in equities and the remaining in debt instruments. In a way, it is somewhat similar to an aggressive hybrid fund.
The equity portion will focus on growth-oriented companies. The fund is expected to take a flexi-cap approach to investing, using a bottom-up stock selection process.
Baroda BNP Retirement will choose stocks based on its BMV model. The key factors considered will be businesses with moats, management quality, and valuation with a focus on margin of safety.
In the debt portion, the fund will consider active duration management to take advantage of the current interest rate scenario. Credit quality, however, will be kept fairly healthy, with a focus only on AA and higher-rated securities. Companies with high leverage will be avoided.
Overall, the hybrid fund will seek to offer reasonable risk-adjusted returns over the long term focusing on asset allocation based on market conditions.
What should investors do?
As indicated earlier, saving for retirement after deciding the timelines, estimating longevity, calculating the monthly requirements and arriving at a suitable sum to invest is to be done carefully and systematically. Asset allocation and risk appetite become particularly important.
For those in their 20s and 30s, it would be ideal to invest for retirement (planned at age 55-60) in a mix of large, flexicap, and multicap equity funds, perhaps adding small and midcaps as well based on their risk appetite.
Those in their mid- or late 40s can perhaps skip the small and midcap funds part. Only for those who start late, say, at 50 or so, does it make sense to invest in hybrid funds dedicated to retirement, as they cannot take too many risks with their corpus.
Regular balanced advantage and aggressive hybrid funds would still work well for retirement goals. But the 5-year lock-in that retirement funds mandate can perhaps serve as a good way to stay put for longer periods and accumulate a healthy corpus.
ICICI Prudential Retirement Hybrid Aggressive and HDFC Retirement Savings Hybrid Equity are among the best in the retirement-focused hybrid funds category. Tata Retirement Savings Moderate Plan has also performed reasonably well.
The first two funds must be the first choice of investors wanting to take the retirement fund route for their goal.
Baroda BNP Paribas has done well as a fund house with its relatively limited set of schemes, though it is rolling out newer schemes regularly and expanding its offerings. The fund house has delivered well on its balanced advantage and aggressive hybrid funds over the years, which lends confidence.
Investors who have exposure to other categories of funds and wish to take a moderate approach to saving towards their goal can consider the BNP Paribas Retirement NFO for diversification, and park small sums, or start an SIP in the scheme.