Though the insurance regulator has rectified the cost and commission structure of Ulips, pension plans from insurance companies remain costly investments that are best avoided. In the past year, the returns from the equity funds of pension plans have been close to 25%.However, as we mentioned earlier, this is only the change in the NAV. The net return for the investor may be lower because some charges are levied by deducting the units from the account.

Instead of the pension plans from insurance companies, it may be a better idea to go for the retirement funds from mutual funds. They give the same tax benefits but don't force the investor to annuitise the corpus on maturity. He is also free to remain invested beyond the age of 60. Since these mutual funds are debt oriented plans, the investor can claim long-term indexation benefit when he withdraws. In the long-term, the inflation indexation can reduce the tax to almost nil.

Unfortunately, there are very few funds in this space. Late last month, Reliance Mutual Fund launched its Reliance Retirement Fund, an equity-oriented fund that is eligible for tax deduction under Section 80C.Sebi wants fund houses to launch more such funds. If more retirement funds are introduced and the government extends them the same tax benefits, they can become game changers for the pension plan category.

However, your retirement planning should not hinge on the launch of pension products. This purpose can be fulfilled by other products, such as ELSS schemes and diversified equity funds, as well. In fact, as we explained earlier, even Ulips can be used for this purpose.