For the long term, depending on the risk profile of the investor, one may need to change the assets mix and allocate a certain percentage into equity-oriented mutual funds.
With interest rates going down, fetching the same interest income is becoming difficult for senior citizens. Also, life expectancy is increasing. Therefore, making investments in such a way that one’s corpus doesn’t get depleted quickly is important. “If an investor has recently retired and is concerned about inflation eating away at the value of their corpus over the long term, they can consider investing in a mix of equity, gold and debt mutual funds to earn better returns,” says Rishad Manekia, Founder and MD, Kairos Capital Private Limited, a Mumbai-based financial planning firm.
But, how safe is it to invest in mutual funds post-retirement? “Before looking at avenues other than FDs or fixed income products, an investor needs to understand how much risk he or she is willing to take in order to earn that extra return. They both go hand in hand; if you want more return, you have to be willing to take higher risks and experience volatility in the portfolio,” says Manekia.
The risk in mutual funds is a big factor that investors are concerned of but an exposure into equities is also required. “It is a misnomer that senior citizens should invest only in safe investment avenues. It is very important to take a future requirements perspective and investment basket for the long-term future requirements should comprise carefully-chosen equity products like equity mutual funds too,” says Col Sanjeev Govila (Retd), a SEBI Registered Investment – Advisor (RIA), and CEO, Hum Fauji Initiatives, a financial planning firm which caters exclusively to armed forces officers and their families.
“For the long term, depending on the risk profile of the investor, one may need to change the assets mix and allocate a certain percentage into equity-oriented mutual funds (MFs) schemes also. To reduce the risk further, one should diversify the investment across large-cap and dynamic asset allocation funds, and maybe even established multicap funds. But senior citizens should remain away from high-risk MFs such as thematic and sectoral funds, or MFs investing largely in mid- and small-caps.” adds Col Govila (Retd).
Debt funds for senior citizens
A lot of investment by senior citizens is also done in debt mutual funds. Even though, they are not as volatile as equity funds, the inherent risk of debt securities could be higher as several factors impact their performance and safety of money. Higher yielding securities held by debt funds in their portfolio provides higher returns but comes with high risk as well. “Safer categories of Debt mutual funds like Ultra Short Term Funds are also better compared to fixed deposits and other fixed income products as they are tax efficient, especially for those in the highest tax bracket and can be liquidated easily and quickly when required. Using SWP, one can get a tax-efficient regular income also of the desired amount when required,” informs Col. Govila (Retd).
Factors to consider
Money lost during retirement will be a total loss in the absence of any fresh earnings. So, make sure you invest keeping your risk profile and regular income needs in mind. “Safety of principal is important, in the attempt to reach for a higher yield one should not put the investment corpus at risk. Another aspect to consider would be liquidity: products with a long lock-in period and which are difficult to exit should be avoided,” says Manekia.
It is important that the factors such as safety, liquidity, returns and taxation should be given its due importance. “Factors that one should consider before investing in any avenue typically remain the same, irrespective of products. One should look at the safety of principal, reasonable returns, good liquidity, and tax efficiency,” says Col. Govila (Retd).