With medical advances, studies say that human life could soon prolong well beyond 100 years. A research published in the Lancet journal points out that in India life expectancy has increased to 70.8 years. This shows that a person needs to save enough money to fund his/her future.
Since after retirement there would not be a regular source of income, often senior citizens park their money in oldest forms of investments such as Fixed Deposits and post office savings schemes. While there is nothing wrong in investing money in this asset class, financial advisors say senior citizens should come out of this conventional hurdle and think of other alternative asset classes.
“Senior citizens are not aware of proper alternative investments. They are only aware of bank deposits, Post office savings schemes, treasury investments and other traditional investments avenues. Given the new age we live in and characterised by low interest rates, it is important to give proper awareness to senior citizens so that they can generate a decent return on their investments after beating the mounting inflation while also being tax efficient,” says Mutual Fund Distributor, M.S. Benny
He adds that senior citizens should plan their investments to earn a sustainable return in the long run, which traditional investments fail to deliver most of the time.
{{/usCountry}}He adds that senior citizens should plan their investments to earn a sustainable return in the long run, which traditional investments fail to deliver most of the time.
{{/usCountry}}If investments are made for a longer duration of more than three years, they will also fetch indexation benefits.
It’s time to invest in Mutual Funds
Apart from recurring expenses, senior citizens might have other non-recurring expenses and goals to achieve such as a round-the-world trip and hosting a son or daughter’s wedding.
Keeping all this in mind, a senior citizen should think of investing in other asset classes. Gone are the days when investing in stock markets used to be a tedious task, now with everything done online, it is easy for investors to do transactions online.
“For senior citizens, investments should be highly liquid, tax efficient and should fetch good returns without risk on their capital invested. In the digital era, senior citizens have a lot of options, but at the same time, they should be cautious about their choice,” says V Vijayakumar, MD and CEO of Zebu Share and Wealth Management.
Senior citizens should focus both on capital preservation and appreciation, and debt mutual funds can be one of the investment options for them.
R Vishwanathan, a 65-year-old senior citizen says, “My friends often used to discuss about equities and Systematic Investment Plan (SIP), but I used to ignore them as I was clueless, but after knowing about these asset classes, I convinced myself that there is nothing wrong in investing in mutual funds, provided you approach a proper financial advisor and seek his guidance.”
He says instead of investing in one particular asset class, the financial advisor suggested diversifying his portfolio.
Benny says that apart from FDs in banks, senior citizens can consider the following investments in these changing circumstances.
• Short duration funds
• Medium duration funds
• Corporate bond funds
• Savings funds
• Dynamic asset allocation plans
• RBI Floating Rate Interest Bonds
Although these instruments carry a certain level of risk, considering the low returns from FDs, they may fetch better returns while also being tax efficient. Senior citizens can also make a part of their investments in dynamic asset allocation funds, balanced advantage funds and balanced funds of MFs, depending on their risk appetite and return expectations, he adds.
Financial advisors say they often get questions from senior citizens about investing in real estate.
“Senior citizens can invest in MFs and they can stay invested till the end of their life. One can choose an income and growth fund. Real Estate has liquidity issues and rental yields are not uniform to all the cities. Rather investing in physical assets, senior citizens can invest in REITs (Real Estate Investment Trust),” says Vijayakumar.
Instead of postponing investments, retirees should change the conventional mindset and explore options such as equities and bonds. One can achieve the desired return on investment by staying invested in mutual funds. It’s high time that senior citizens explore various investment options that not only provide security but also yield huge returns.
Key takeaways
1) Don’t invest your money only in one particular asset class. Instead of thinking ‘fixed’ returns, senior citizens should change the mindset and focus on ‘growth’.
2) While capital preservation is a must, retirees should also find ways to get good returns on their investments.
3) Debt, balance and liquid funds help senior citizens get good yields in the long-run. Internet provides you an overload of options, so it is better to reach out to financial advisors who can guide you according to your goals.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.