Are you asking yourself whether to invest in a mutual fund or an individual retirement plan? Don’t worry, this is a very common question. Now you are going to know the differences between investment funds and pension plans.
They are possibly the two best known and most widely used collective savings products in Spain for investing, especially in the long term and with retirement in mind.
However, when it comes to choosing one product or the other, there are important differences between a mutual fund and an individual retirement plan. Knowing these differences will allow you to make a fully informed decision about the product that best suits your circumstances and stage of life.
Liquidity
The main difference between mutual funds and individual retirement plans lies in their liquidity.
The mutual funds allow you to recover your investment at any time, and in a few days. Between 3 and 4 working days, depending on the entities. Then, you can have the money in your banking or savings account once the corresponding deductions have been made.
Individual retirement plans, on the other hand, are illiquid products, since the money can only be reimbursed in the event of the participant’s retirement or only in a series of very restrictive cases, such as permanent disability, long-term unemployment, eviction, or 10 years after the first contribution.
Imposes
At the tax level, there are also significant differences between the two instruments. Mutual funds are taxed like other investment instruments since the gains along with the rest of the capital gains.
Individual retirement plans are treated differently from other investment vehicles.
To begin with, because up to a maximum of €2,000 or 30% of the net income from work and economic activities are deductible from the general income tax taxable base.
In the case of the redemption of the plan, all the consolidated earnings rights will be taxed as income from work.
What both products have in common is that the capital can be transferred from one fund to another fund or from one retirement plan to another without any tax impact.
In other words, you can transfer part or all the capital from one product to another of the same nature without having to first sell and then buy it again, thus saving you both taxes and commissions.
Product Offer
Both investment funds and Individual retirement plans are available in different categories to satisfy different types of investor profiles: fixed income, variable income, mixed, guaranteed…
However, the reality is that the range of individual retirement plans in Spain is much smaller compared to mutual funds, where there is a much wider variety.
However, in recent years, institutions have begun to market a wider range of products, such as indexed pension plans.
Costs and fees
Individual retirement plans have different costs than mutual funds. In fact, their maximum fees are limited by law.
Thus, the maximum deposit fee that an entity can charge for an individual retirement plan is 0.20% of the total assets and a management fee of 1.25%.
However, these fees differ depending on the type of product: if it includes a fixed income fund, the maximum fee is 0.85%, if it includes a mixed income fund, the maximum fee is 1.30% and if it includes a variable income fund, the fee is 1.50%.
In mutual funds, Royal Decree 1082/2012 also establishes a maximum for the management fee that collective investment entities may charge. Thus, in general, management fees may not be charged that, in annual terms, exceed the following limits:
● When the fee is calculated solely based on the fund’s assets, 2.25% thereof.
● When the fee is calculated solely based on performance, 18% of performance.
When both variables are used, 1.35% of assets and 9% of results.
However, the greater variety of mutual funds means that, as a rule, mutual funds have lower fees than individual retirement plans, especially index funds.
Invest in an individual retirement plan and mutual funds with inbestMe
Now you know the differences between investment funds and pension plans. With inbestMe you will be able to invest in a portfolio of retirement plans as well as in a portfolio of mutual funds.
InbestMe will keep the portfolio adjusted to your investment profile and, if your personal situation changes, we will help you to adjust it to your new situation.
All this with low costs and always in accordance with your financial situation.
