AMFI’s 401(k)-Style Retirement Account: What Indian Investors Should Know

In September 2025, the Association of Mutual Funds in India (AMFI) unveiled the Mutual Fund–Voluntary Retirement Account (MF-VRA), a new retirement savings scheme modelled on the US 401(k) plan. The proposal aims to offer Indian workers a structured, employer-linked route to retirement savings, with contributions invested through mutual funds to build a long-term corpus.

AMFI’s 401(k)-Style Retirement Account: Things You Need to Know

Here is what investors must know about AMFI’s 401(k)-Style Retirement Account:

• Contribution Mechanism
  

The MF-VRA is designed as a voluntary, employer-linked retirement account managed by mutual funds. Contributions can be made jointly by employers and employees. According to AMFI’s white paper with CRISIL, employers may contribute a fixed percentage of the employee’s salary, matched by the employee.

For example, a 10% employer contribution on a ₹50,000 monthly salary results in ₹5,000 monthly input, matched by the employee for a total of ₹10,000. This structure mirrors the US 401(k) model, aiming to institutionalise retirement savings. The mutual fund industry’s Assets Under Management (AUM) stood at ₹75.11 lakh crore as of July 2025, indicating sufficient depth to absorb MF-VRA inflows.

• Tax Incentives
  

The MF-VRA scheme proposes tax deductions under Section 80C of the Income Tax Act, similar to the National Pension System (NPS) and Employee Provident Fund (EPF). Contributions up to ₹1.5 lakh annually may qualify for deductions, reducing taxable income. AMFI suggests additional exemptions beyond 80C to incentivise participation.

For example, if MF-VRA contributions are separately deductible, a salaried individual in the 30% tax bracket could save ₹45,000 annually. This tax architecture is critical to drive adoption among middle-income earners. The proposal also recommends deferred taxation on withdrawals, aligning with global retirement norms.

• Coverage Expansion to Gig

Unlike EPF and NPS, which primarily serve salaried individuals, MF-VRA is designed to include gig workers, freelancers, and self-employed professionals. India’s gig economy employed 7 million workers in 2021, projected to reach 23.5 million by 2030. The MF-VRA aims to offer portable accounts with flexible contribution options for these segments. For example, a freelance designer earning ₹10 lakh annually could contribute ₹1 lakh to MF-VRA and claim tax benefits. This inclusion addresses the pension gap for 85% of India’s workforce, which remains outside formal retirement systems.

• Portability

MF-VRA accounts will be portable across employers and geographies, ensuring continuity of retirement savings. AMFI proposes lifecycle funds that adjust asset allocation based on age. For instance, a 30-year-old investor may have 80% equity exposure, gradually reducing to 30% by age 60. These funds will be managed by Securities and Exchange Board of India (SEBI)-regulated mutual fund houses. Portability ensures that employees changing jobs or cities retain their retirement corpus without disruption. In 2025, 82% Indians are considering a job switch, making portability a critical feature for long-term savings retention.

• Demographic Impact

India’s elderly population (60+) is projected to rise from 10.5% in 2023 to 20.8% by 2050, per United Nations estimates. This demographic shift implies that over 300 million Indians will require retirement income support. Currently, only 18% of the workforce is covered by formal pension schemes. The MF-VRA aims to bridge this gap by leveraging mutual fund penetration.

• Economic and Fiscal Implications

The MF-VRA is expected to reduce the fiscal burden of old-age support on the government. India’s pension subsidy under the National Social Assistance Programme was ₹103,773.86 crore in FY25. By shifting retirement provisioning to private mutual funds, the government can reallocate resources. Additionally, MF-VRA will channel household savings into capital markets, deepening financial intermediation. According to the Reserve Bank of India’s Annual Report 2024, net household financial savings stood at ₹14.16 lakh crore in FY24, with only 6.8% in mutual funds as reported by RBI’s Financial Stability Report (June 2025).

AMFI’s 401(k) Implementation: Potential Challenges

The implementation of AMFI’s 401(k)-style retirement account is not without challenges. Here are a few:

• Regulatory Coordination: Successful rollout requires seamless collaboration between SEBI, Central Board of Direct Taxes (CBDT), Employees' Provident Fund Organisation (EPFO), and the Ministries of Finance and Labour. Aligning tax benefits, product structures, and portability standards across agencies is complex.

• Low Financial Literacy: Many Indians lack awareness of retirement planning and mutual fund products. Without targeted education and outreach, uptake may remain limited, especially among informal workers.

• Employer Participation: The scheme hinges on employer-linked contributions. Convincing private and Micro, Small and Medium Enterprises (MSME) employers to adopt MF-VRA voluntarily, especially without mandatory provisions, poses a challenge.

• Trust and Transparency: Building trust in mutual fund-managed retirement accounts demands clear disclosures, low-cost structures, and consistent performance benchmarks.

• Lifecycle Design: Ensuring portability across jobs and designing lifecycle funds that adapt to changing risk profiles requires robust infrastructure and investor-friendly tools.

Conclusion

The proposed MF-VRA represents a significant step towards enhancing retirement savings in India by offering a voluntary, employer-linked scheme managed through mutual funds. While the initiative holds promise in addressing the pension coverage gap and promoting financial inclusion, its success will depend on effective implementation, stakeholder collaboration, and widespread awareness.

As India moves towards an ageing population, initiatives like the MF-VRA are crucial in ensuring that individuals have the financial security needed for a comfortable retirement.

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