Is It Safe For Retirees To Put Their Money In Mutual Funds?

By | November 21, 2017

Post-retirement, the focus of retirees is to invest in appropriate instruments to get a secured return and use the income to meet their regular expenses. Investment in mutual fund schemes can help them garner good returns.

Is It Safe For Retirees To Put Their Money In Mutual Funds?

With interest rates nose diving continuously in the last 12 months, now risk-averse investors have limited choice left in low-risk debt investments like bank Fixed Deposit (FD). The prevailing FD rates for the senior citizens is somewhere around 7.5% p.a. The interest rate is still on the downward trend.

Retiree investors, which largely constitutes senior citizens, are now exploring investment opportunities in Mutual Funds for several reasons. Mutual Funds are a versatile investment product and senior citizens can use the online tools to invest or redeem the fund. There are wider options within Mutual Fund schemes which are very attractive for the retirees. Attractive return is one of the key reasons which is drawing the attention of the retirees.

Retirees normally want to take minimal risk, but Mutual Funds are normally considered a little riskier than FDs. In that case, is it correct for retirees to put their money in the Mutual Fund? Here’s the answer.

Investment Prospects In Mutual Fund For Retirees

Most retirees get the lumpsum retirement fund which they look to invest in the appropriate instruments to get a secured return. This income can be used to meet their regular expenses as well as financial objectives.

Mutual Funds offer investment schemes that vary from low-risk to high-risk products and the return is accordingly delivered. If retirees select the appropriate fund as per their risk appetite, return expectation and their financial objectives, then there are several options in the Mutual Fund that can offer them better flexibility and comfort in comparison to other debt investment options.

Mutual fund schemes are managed by highly skilled fund managers, therefore, retirees can earn good returns from different asset classes. Still, retirees can consider investing by diversifying their funds in FDs, Mutual Funds and other asset classes depending on their risk-taking capacity.

While investing in a Mutual Fund, there are lots of options available for retirees.

Investing In Debt Fund

Debt fund is one of the simplest Mutual Fund schemes which offers a minimal risk and provides low-to-moderate returns to the investor. Depending on the financial objectives, retirees can select the appropriate fund for short, medium and long-term investment.

For example, the fund which retirees keep in their Savings Account or as contingency fund can be invested in Liquid Funds which normally give a return of around 7% to 8% p.a. and there is flexibility to withdraw the fund on any working day.

Similarly, for medium to long-term investments, investors can focus on short-term debt funds when the interest rate is close to the bottom or long-term debt funds when the interest rate is expected to fall further. Short- or long-term debt funds can give higher returns than the prevailing bank FD rate.

Invest In Balanced Fund

If you want to take a slightly higher risk and want to invest for the long term, then a Balanced Fund can give you a high return with comparatively lower risk than investments in equity funds. In a balanced fund, the corpus is used to invest in both equity and debt instruments. You can select an appropriate balanced fund as per your risk-taking capacity.

Invest In Capital Protection Fund

One of the key reasons due to which retirees like FD is that their capital stays intact in any situation and they also earn a little return on their investment. For such investors, capital protection fund could be a very attractive option. In such schemes, out of the corpus that you invest, around 80% is invested in the fixed income securities and the rest 20% of the fund is used to invest in equity-related products.

While 80% of the fund gives you a safe return and ensure that you get sufficient return to rebuild the invested capital during the tenure of the investment, the rest 20% is used to maximise your return using the equity growth.

You can also make your own investment portfolio similar to the capital protection fund by investing in a debt Mutual Fund directly and a small portion in an equity fund. There is another option – you can invest in FD with monthly interest option and use such interest to invest in equity Mutual Funds through SIP mode.

Put Some Money In Arbitrage Fund

The arbitrage fund gives you returns from the volatility in the equity spot market and the future market. It carries a lower risk than other equity funds. And the risk profile is almost similar to debt funds. You also get the benefit of LTCG tax if your investment period is more than 1 year. Since the stock market is making new highs and volatility in the equity market has increased in the last few years, an arbitrage fund is a good option for retirees.

If you are a retiree and looking to invest your money, then Mutual Funds can give you lots of variety in comparison to sole investments in FD. You can plan the investment in a better way as per your financial objectives and tax obligation. (Always consult an investment advisor before you invest in Mutual Funds. Investment in Mutual Funds is subject to market risk, so invest carefully.)

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

2 thoughts on “Is It Safe For Retirees To Put Their Money In Mutual Funds?

    1. Team BankBazaar

      Hi Ganesh,

      We’re glad to hear this. Keep reading.

      Team BankBazaar


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