The Association of Mutual Funds in India has proposed an employer-linked retirement product similar to the US 401(k) plan.
In a white-paper released on Tuesday, the industry body suggested its ‘Mutual Fund- Voluntary Retirement Account’ (MF-VRA) scheme aims to provide a voluntary, employer-linked retirement product managed by mutual funds.
The scheme will offer features such as voluntary participation, employer-sponsored options, managed by mutual funds, alongside tax incentives, portability and flexibility.
The MF-VRA scheme will build on the long-term policy laid out by SEBI, enhancing the reach and promoting financial inclusion, and would ride on the growth of mutual funds which has crossed ₹75 lakh crore of assets as of July-end.
The success of the MF-VRA scheme depends on the collaborative efforts of regulatory enablers, operational design stakeholders, and other key players.
The benefits of the MF-VRA scheme would be multifaceted, enhancing pension penetration and coverage in the country, having a positive impact on economic growth, and reducing the burden of social security on the exchequer.
Stability & depth
The scheme will also channel household financial savings into the financial markets, providing long-term stability and depth, and increasing the scale and efficiency of the mutual fund industry.
Additionally, the scheme would provide supplemental retirement planning and long-term allocation to productive assets for investors, ultimately leading to a more secure and sustainable financial future for individuals.
To make the scheme a success, AMFI said stakeholders must work together to define the product structure, introduce tax deductions, establish portability provisions, create retirement lifecycle funds and design user-friendly onboarding and goal-tracking tools.
By doing so, India can develop a robust pension system, supplementing retirement planning and provide individuals with a secure and sustainable financial future.
Navneet Munot, Chairman, AMFI said rising life expectancy, evolving family structures and growing aspirations have made retirement planning an essential life goal rather than a distant afterthought. The years beyond active work can now span decades — a phase that must be sustained by foresight, discipline and prudent investing, he said.
The AMFI whitepaper, he said, highlights the urgency of the challenge and opportunity to ensure that every Indian can look forward to a retirement marked by dignity, independence and peace of mind.
Venkat Nageswar Chalasani, Chief Executive, AMFI said as India’s young demographic gradually transitions into an ageing population, the widespread lack of preparedness for retirement poses a serious challenge and it will be further compounded by the absence of mandatory retirement savings.
When individuals invest with a long-term horizon, especially through instruments such as mutual funds, he said, their savings contribute to capital formation and economic development. These investments help fund infrastructure, businesses, and innovation, ultimately driving national growth and stability, he added.