AMFI’s 401(k) Plan for India: Could the New MF-VRA Scheme Secure Your Retirement?
For decades, retirement planning in India has been a fragmented landscape dominated by traditional instruments like the Employee Provident Fund (EPF), Public Provident Fund (PPF), and fixed deposits. While effective, these options often fall short in a country where a majority of the workforce lacks formal pension coverage and is “aging into poverty”. With one in five Indians projected to be over 60 by 2050, the need for a modern, robust retirement solution has never been more urgent.
Enter the Mutual Fund–Voluntary Retirement Account (MF-VRA). In a landmark proposal unveiled in September 2025, the Association of Mutual Funds in India (AMFI) has put forward a new retirement savings framework modeled on the highly successful American 401(k) plan. This ambitious MF-VRA scheme aims to channel household savings into professionally managed mutual funds, creating a market-linked path to a secure retirement for millions. But what exactly is this plan, and could it be the answer to India’s looming retirement crisis?
The Problem: India’s Retirement Gap
The reality for many Indians is sobering. A large portion of the population, especially those in the unorganized sector and the growing gig economy, have no formal retirement plan. They often work until they no longer can, hoping their children will provide for them in old age. Even for those with access to traditional pension schemes, the returns may not be sufficient to combat inflation and build a truly comfortable post-retirement corpus.
Recognizing this gap, AMFI, in a whitepaper with CRISIL, has designed the MF-VRA scheme to create a structured, voluntary, and market-linked savings vehicle that is accessible to a broader segment of the population, including freelancers and gig workers.
How Will the MF-VRA Scheme Work?
Inspired by the US 401(k) system, the MF-VRA is designed as an employer-sponsored retirement account. Here’s a breakdown of its core features:
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Voluntary Participation: As the name suggests, participation is voluntary. Both employers and employees can choose to contribute to the account. This flexibility is key to encouraging adoption across different income levels and industries.
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Employer-Employee Contribution Model: The plan proposes a co-contribution structure. An employer might contribute a fixed percentage of an employee’s salary (e.g., 10%), which is then matched by the employee. For instance, on a ₹50,000 monthly salary, a 10% contribution from both would result in a total monthly investment of ₹10,000 into the MF-VRA.
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Mutual Fund Management: Unlike traditional pension plans that invest primarily in debt, the funds in an MF-VRA will be professionally managed by mutual fund houses. This allows the corpus to be invested in a diversified portfolio of equities and debt, offering the potential for higher, market-linked returns over the long term. With the Indian mutual fund industry’s AUM reaching over ₹75 lakh crore, it has the depth to manage these large-scale inflows.
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Portability: A crucial feature for the modern workforce, the MF-VRA account would be portable across jobs. When an employee changes companies, the retirement account moves with them, ensuring uninterrupted compounding of their savings.
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Inclusion of Gig Workers: The framework also allows freelancers and independent contractors to opt-in, providing them with a much-needed structured savings option that was previously unavailable.
Tax Incentives: Making Savings More Attractive
To drive participation, the MF-VRA scheme proposes significant tax benefits. Contributions would likely qualify for deductions under Section 80C of the Income Tax Act, similar to existing options like EPF and NPS.
However, AMFI is pushing for more. The proposal includes a call for additional tax exemptions beyond the current ₹1.5 lakh cap of Section 80C. This could be a powerful incentive, encouraging individuals to save more for retirement by offering them greater tax relief.
Challenges and the Road Ahead
While the MF-VRA scheme holds immense promise, its success hinges on building trust. In a country where gold and fixed deposits have long been the preferred savings instruments, convincing people to shift their long-term retirement savings into market-linked products will be a significant challenge. Financial literacy and investor education will be paramount to help people understand the risks and rewards of mutual fund investing.
Furthermore, the final regulatory framework and tax treatment will be critical. The government and SEBI‘s support will be essential in shaping the product to be both attractive to investors and beneficial for the broader economy.
If implemented successfully, the MF-VRA could be a transformative force. By directing household savings into the capital markets, it would not only help individuals build a substantial retirement corpus but also deepen India’s financial markets and fuel economic growth. For a nation getting older faster than it’s getting richer, this innovative scheme could be the key to ensuring a future of financial dignity and security for millions of Indians.