Where And How Should Senior Citizens Invest

The period of retirement means end of work. The old age is vastly different from the young age due to increased medical expenses and less capacity to work.

Traditionally senior citizens prefer to invest in fixed deposits or fixed income schemes offered by the government. They prefer to have a lighter portfolio since they are more concerned about protecting their capital and are generally risk averse. They prefer investments that have low risk and high liquidity even if it offers moderate returns. However inflation has the biggest impact on the lives of senior citizens. It affects their spending patterns. Lack of awareness force them to invest in traditional savings instruments that work like double edged sword.   

The mutual fund universe is vast and offers products for every class of investors. Mutual fund are not only liquid but they also offer higher return than traditional saving instruments. Debt funds, balanced funds and liquid funds are ideal for senior citizens. Since senior citizens have low risk tolerance they should invest 75% corpus in debt schemes and the balance can be invested in equity schemes for capital appreciation. Investment in a debt fund can ensure regular income too. Systematic Withdrawal Plan (SWP) is an ideal toll for regular cash flow at a predefined interval.

Many question the investments in equity funds. If someone wants to invest for longer period, i.e. 5 years or more, and is willing to take slightly higher risk, equity funds can deliver returns that can not only beat inflation but also result in capital appreciation. Large cap equity funds are considered as a safer option since they are relatively stable and less volatile. Equity mutual funds have provided returns in the range of 15-18% on annualized basis. A good financial adviser can help you to identify good funds to invest. After retirement, DIY investing can prove to be dangerous and a wrong investment can result in erosion of the capital. It is always advisable to have a good financial adviser by your side.

If one has a large corpus lying in bank, one can park their funds in a liquid fund or ultra-short-term fund. These funds are considered as a very low-risk and provide higher returns than a savings account. These funds invest in high grade securities and carry very low risk. They are highly liquid and can be redeemed at will.

Investing can be a dilemma for senior citizens. If they invest in a fixed deposit their investment is risk free, but the returns will be considerably lower besides attracting tax on maturity and lower than inflation returns. Debt funds are considered as tax efficient because indexation benefit is available if the investor holds for three years or more. On the other hand fixed deposits are treated as regular income and are taxed at peak rates. For someone who is in 30% tax bracket, bank fixed deposits considerably lower returns post-tax making it unattractive for investment.

Mutual funds are fast replacing traditional investments. Besides providing higher returns, they provide stability and liquidity of traditional saving instruments. They can be ideal friend post retirement. Not only one can get regular income, but also get wealth appreciation. More importantly they help to beat the inflation. Do not forget to seek advice of a good financial adviser.

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