In nearly seven years of its operation, Templeton India Pension Plan has delivered a total annualised return of 16.29 per cent as on March 8, 2004. That apart, the returns have come with low volatility thus making it a good tax-saving investment. Investments of up to Rs 70,000 in a pension fund is liable for tax benefit under Section 88 of the Income Tax Act, 1961.
The fund has consistently maintained a 60-40 debt-equity allocation in recent past, thus sticking to its investment mandate. Though debt forms a large part of the portfolio, but the fund manager has managed the fund very cautiously, without taking a big call on the interest rate. For instance, its average maturity has been in the lower band of 0.57-3.64 years. Even during the bank rate cuts in the past three years, the fund kept its average maturity at around 2 years. Rational: the fund is meant to meet investors' post-retirement needs, thus the fund managers can't take higher risks.
Moreover, the fund has largely stuck to quality bonds (AAA-rated) and gilts have accounted for an average 9 per cent of the portfolio. However, in the past four months, the fund has pared all its gilt holdings in favour of AAA-rated bonds. Though initially, it was not that much quality cautious.
In 2000, exposure to below AAA rated bonds accounted for an average 18 per cent, but that too has come down to 8 per cent in 2003. The biggest advantage for the fund managers of pension fund is that the 3-year lock-in gives them enough liberty to buy and hold a particular bond till maturity. This helps in earning continuous higher interest without bothering about the market yields. For example, Templeton India Pension fund is holding debentures of IDBI for the last five years. It has also held the debentures of Reliance Industries for five years.
The fund mangers' low risk proposition can also be seen from the fact that for the initial three years, it didn't take any exposure to equities. Thus, the fund remained unscathed when the tech stocks crashed post March 2000.
It started investing in equities since May 2000 and that too in large-cap stocks. Infosys, Hindalco, BPCL and HDFC Bank have been the fund's top holdings for long. Overall, the equity portfolio has always been widely diversified and spread over 15-20 stocks. In 2003, the fund had a higher exposure in financial services sector, which was one of the best performing sectors that year and the fund gained 42 per cent in 2003.
To purchase Templeton India Pension Plan, a minimum investment of Rs 500 is needed. The fund also offers Systematic Investment Plan, for which the minimum investment amount is Rs 500 per month for 12 months or Rs 1,000 per month for 6 months.
Just like tax-planning equity funds, pension funds also have a lock-in of three years. However, after expiry of three years, you can redeem your investment by paying an exit load 3 per cent (if units are redeemed before the age of 58). Once an investor turns 58, redemption is on a no load basis and you can opt for the full redemption or Systematic Withdrawal Plan (SWP).