- As a retiree, where should you invest to make the most?
- Read this post to know the investment type and strategy you need to follow
Just as you have ensured your working days smoothly, you would want even your post-retirement life to be that way. While some keep the money they earned throughout their working days predominantly in savings accounts, others just pass on the responsibility of managing their finances to their kids. All this increases the possibility of gloomy retirement life. The money earned throughout your work life should be invested in the right avenues so that you can get the optimum results. The body and mind may not work the same as they would have in your young days. At the same time, inflation will continue to notch higher, making life difficult for all those sticking to low-return investment options only.
So, investments should be more meticulous as you will have NOTHING except the money you saved and earned all your work life. With nothing, it is meant the lack of active income which is more likely to be the case in post-retirement days. Any negligence on it can make you lose sleep. Let’s dive into different investments you can choose from to take yourself forward. The post will help you do so. Let’s begin!
Have a Medium to High-risk Appetite? A Lump Sum Investment in Equity Funds is Warranted
The propensity to take risks wane as you move ahead in your lifecycle. The kind of risk-appetite you have in your young days won’t remain that way when you are retired. Still, there can be some retirees willing to take greater risks. And, for them, a lump sum investment in equity mutual funds is still advisable. Because investments made in these funds can help them generate an inflation-adjusted corpus. Since you won’t have an active income such as salary presuming that you will be sitting at home during your retirement days, you will seek regular income to meet your expenses.
Keeping this in mind, lump sum investments in equity funds come with an option of Systematic Withdrawal Plan (SIP). An SWP is a method by which you can get a predetermined amount from your lump sum investments on either of the monthly, quarterly, half-yearly or annual intervals that you choose. The best would be to choose the monthly interval so that you meet your expenses properly. While setting SWP, put the amount you need monthly. You can set the SWP online by visiting the website of Computer Age Management Services CAMS, a mutual fund transfer agency, or at the branch of the particular mutual fund house.
Those having a medium risk appetite can invest the lump sum in an equity-oriented hybrid fund that keeps the money in both equity and debt instruments.
But Which Equity Funds Should You Invest in?
Choosing from a wide range of equity mutual fund schemes can be difficult. But if you keep your selection principles better, you can choose a very good scheme. Just do the research online and find out the funds that have given good returns consistently over time. See the kind of rating they have been assigned from mutual fund research houses.
Shall You Invest in Stocks Directly?
No, you should not, if you don’t understand the dynamics of the stock market. Unlike a mutual fund where a dedicated fund manager is there to take stock of your investments, the success of direct investment in stocks will depend greatly on your market acumen. In case you don’t have, resist the temptation of investing in stocks directly. Instead, route your investments to stocks via equity mutual funds.
Can’t Take Big Investment Risks? Choose from Debt Mutual Fund/Fixed Deposit/PPF
Most don’t like to take greater risks in their investments once they are 60+. For them, investment options such as debt mutual funds, monthly income plans of banks and post offices. Let’s read about each of them below.
Debt Mutual Funds
These are mutual funds that invest in a myriad of debt instruments such as bonds, debentures, bank fixed deposits, etc. As investments are made in instruments with less volatility, the possibility of stable returns is more. However, of late, some debt funds have given negative returns owing to the defaults made by IL&FS to non-banking finance companies (NBFCs) and housing finance companies (HFCs) who issued their bonds and debentures to mutual fund houses. So, in light of the recent developments, it has become necessary to pick debt funds that have not only posted good returns but also invested heavily in instruments having a good credit rating. The rating determines the kind of solvency the instrument will bring in. For good solvency, the instrument must have a rating of A, AA and above. If the portfolio is exposed greatly to B and C-rated instruments, the possibility of payment default will be higher and will reflect with a poor return on debt funds. For regular income, you can choose the SWP option when you invest a lump sum in debt funds.
Monthly Income Plans of Banks
Monthly Income Plans (MIPs) of banks will have interest rates at par with its fixed deposit rates. As a senior citizen, you can get an additional interest rate of 0.50% on your deposits too. However, that will depend on the amount and period deposit. Most banks offer additional interest for deposits upto INR 2 crores and not beyond that. So, you need to check the same on the lender website thoroughly if you wish to keep your savings in a monthly income plan of the bank. You will keep getting the interest while the principal amount will come to the account once the monthly income plan matures. If we talk about the current interest rates, they have come down greatly to 3%-6.50% per annum. While evaluating the interest rates of top banks, it is found that rates are higher for a long deposit tenor. Premature withdrawal is permitted, but that will cut short the interest earnings by a percentage or two.
Post Office MIS
It is also one of the regular income generating tools that you can think of investing in. The government of India sets the interest rate, which presently stands at 6.60% per annum. You get the interest monthly while you get the principal back after the investment completes a maturity period of 5 years. You can invest a maximum of INR 4.5 lakh in a single account and INR 9 lakh in a joint account. As far as a joint account is concerned, a maximum of 3 adults is allowed in the same. The conversion from a single to a joint account and the other way round is possible. If you want to transfer the post office account from one branch to another, you can do so.
Shall You Invest in Only One Instrument or Distribute it According to Your Risk Appetite?
It’s a good point. An aggressive investor will like to take a plunge with equities. Whereas, risk-averse investors will find it comfortable investing in low-risk instruments such as monthly income plans of banks, post offices, or debt mutual funds. But a smart investor is the one who distributes investments according to his/her risk appetite. Yes, the majority of the investment portfolio would be there where he/she finds most comfortable. But a few percent invested in other instruments will give him/her the required diversification. Hope you pick the right investment option taking cues from this post and ensure your retirement life is as rocking as was your working days.