If you're looking to start saving for your retirement and would like to put a small part of it into equities, try a pension plan.

There are two products in the market -- the Templeton India Pension Plan and the UTI Retirement Benefit Pension Fund. Pension plans get you a good tax break because they are currently eligible for a tax rebate under Section 88 of the IT Act.

According to A K Sridhar, chief investment officer, UTI, under the new section 80C, an investment of say Rs 20,000 would fetch you a tax break of Rs 6,000, if you are paying tax at the rate of 30 per cent.

That's an attractive incentive, especially since with section 80 L being withdrawn interest earned on infrastructure bonds is now taxable.

According to Sukumar Rajah, CIO and director, Templeton Asset Management, the scheme is meant for investors looking to build a nest egg and also save on their taxes. Pension plans allocate 60 percent of the corpus to debt and 40 per cent to equity investments.

That makes the scheme far less risky than a growth scheme, or a diversified equity scheme.

An equity-linked savings scheme (ELSS) which is also eligible for a tax-break under Section 80 C is a little more risky since almost the entire corpus is invested in equities.

Observes, Rajah, "Our plan can invest up to 100 per cent of its assets in fixed income instruments such as government securities, bonds and debentures and up to 40 per cent in equities. The steady state allocation to equity has been between 35-40 per cent.

The scheme gives investors the stability of fixed income instruments and the growth potential of equities. "The scheme is suitable even for people over 40," says Sridhar.

"In fact, they can continue investing even till they are 55 because it is less risky than a pure equity scheme."

Since this is a retirement scheme, Templeton enforces a three-year lock-in and charges a stiff exit load of three per cent after three years and before the age of 58 years.

UTI does not have a lock-in, but charges an exit load of 5 per cent if you exit within one year, 3 per cent if you exit between one and three years and one per cent after three years.

What UTI has also done to help investors is to give a bonus instead of a dividend to make it tax-friendly. Since the scheme invests 40 per cent in equities, a dividend would have been subject to distribution tax, so the scheme has been declaring bonuses instead. Templeton offers both the dividend and growth options.

What UTI has also done to help investors is to give a bonus instead of a dividend to make it tax-friendly.

Since the scheme invests 40 per cent in equities, a dividend would have been subject to distribution tax, so the scheme has been declaring bonuses instead. Templeton offers both the dividend and growth options.

Says Rajah, "Any portfolio designed for retirement needs to beat inflation. The scheme has been building its equity exposure over the last few years to take advantage of the attractive valuations and this allocation to equities should help our investors achieve superior returns over the long term and overcome the inflationary effect on investments."

Templeton has given a return of 13.9 per cent in one year and 21.2 per cent in three years, 15.8 per cent in five years and 15.8 per cent since inception.

UTI"s scheme has given 5.76 per cent five years and 10.77 per cent since inception.

However, it has done better in the last three years with a return of 15.19 per cent and in the last one year of 15.48 per cent.