Amfi proposes U.S.-like 401 (k) retirement plan for India; what’s MF-VRA?

The Association of Mutual Funds in India (Amfi) has proposed a voluntary retirement scheme that would allow individuals to build retirement savings through the mutual fund route, similar to the U.S.’s 401(k) plan. In a white paper report released in collaboration with Crisil, Amfi highlights that by 2050, one in five Indians will be over the age of 60, indicating an urgent need for expanded pension coverage. 

India is not yet prepared to implement a voluntary retirement scheme on the lines of a 401(k) plan, the report points out. According to the white paper, the idea of the proposed Mutual Fund-Voluntary Retirement Account (MF-VRA) scheme stems from India's demographic shift towards an ageing population and the limited reach of the formal pension system.

The proposed scheme would work as a voluntary, employer-linked retirement product, managed by mutual funds. Similar to the U.S. 401(K) plan, it will allow employees and employers to make joint contributions, with tax incentives serving as the key driver.

"Employers can contribute a certain percentage of the employee’s salary to the MF-VRA account, which the employee’s own contributions can match. Furthermore, contributions to MF-VRA accounts may be eligible for tax deductions under Section 80C of the Income Tax Act, similar to other retirement savings instruments, such as the National Pension System (NPS),” the report states.

Additional tax deductions or exemptions can be considered to incentivise individuals to contribute to their MF-VRA accounts. “Tax incentives can help reduce an individual’s taxable income, increasing their take-home pay and encouraging them to save more for retirement.”

Further, according to the proposal, the scheme would not only cover salaried individuals but also be open to self-employed workers, freelancers, and those in the gig economy. This will address the current gap in the pension ecosystem in India.

The report highlights that India's mutual fund industry, which surpassed ₹75 lakh crore in assets in July 2025, is now well placed to manage such retirement accounts.

By leveraging mutual funds, the proposed scheme could channel household financial savings into productive long-term capital, thereby strengthening both individual and financial security, as well as economic growth, according to the report.

However, the whitepaper also stresses that success will depend on coordinated efforts. Regulators, such as Sebi, the labour and finance ministries, and the CBDT, would need to frame clear guidelines and tax incentives, while employers would need to be encouraged to make contributions. According to the report, when these stakeholders collaborate and fulfil their roles, they can guarantee the success of the MF-VRA scheme, fostering a culture of retirement savings and offering individuals a secure and sustainable financial future.

“While the government of India has implemented several measures to increase pension coverage, the industry still falls behind across multiple aspects of the World Bank’s five-pillar framework and individual pension metrics," stated the white paper. Unlike Western nations, where pension systems are more developed, India's pension assets accounted for 11% of the GDP at the end of 2022, compared with over 130% in countries such as the U.S. and Canada. 

According to OECD data, India’s pension assets were 11% of the country’s GDP as of 2022-end. In contrast, the figure was 87% for OECD countries, while for developed pension markets such as the U.S., Australia, and Canada, the size was higher than their GDP, in the range of 130- 150%. Even when compared with countries within the BRICS group, South Africa and Brazil have higher pension assets, at 78% and 24%, respectively, the white paper states.