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Should senior citizens invest in equity mutual funds?

The Financial Express logo The Financial Express 18-02-2021 Priyadarshini Maji
A lot of senior citizens also invest in debt mutual funds, which are not as volatile as equity funds, but they do inherent risk. © Provided by The Financial Express A lot of senior citizens also invest in debt mutual funds, which are not as volatile as equity funds, but they do inherent risk.

Usually, it is seen that senior citizens are encouraged not to invest in equity mutual funds especially after retirement. Most investors also question the safety of investing in mutual funds post-retirement. Industry experts say it is wrong when senior citizens only look at safe investment avenues to invest in. Even though the risk in mutual funds is a big element to factor in by investors, financial planners say exposure to equities is also required.

Industry experts say, investing in a mix of gold, equity, and debt mutual funds should be looked at to earn better returns. To start with – before looking at investment instruments other than FDs or fixed income products, experts suggest an investor needs to find out how much risk he or she will be able to take in for that extra return. Note that the higher the risk, higher the return.

Also, before choosing investment options an investor needs to see future requirements perspectives and investment basket for the long-term future requirements. Experts suggest, depending on the risk profile of the investor, for the long term, one might need to change the assets mix from only safe investment avenues and allocate a certain percentage into equity-oriented mutual funds (MFs) schemes.

Within equity mutual funds, the risk could be further reduced by diversifying the investment across large-cap and dynamic asset allocation funds, along with multi-cap funds. Having said that, financial planners suggest senior citizens should keep away from high-risk mutual funds such as thematic and sectoral funds, or funds that largely invest in mid-and small-cap funds.

A lot of senior citizens also invest in debt mutual funds, which are not as volatile as equity funds, but they do inherent risk. However, higher-yielding securities held by debt funds in their portfolio also comes with high risk even though they provide higher returns. Debt mutual funds like Ultra Short Term Funds are from the safer categories of debt mutual funds but comparatively better than fixed deposits and other fixed-income products. These instruments are also tax-efficient, hence, it benefits especially those in the highest tax bracket and can also be liquidated easily when required.

As there is a total loss of fresh income during retirement, experts say one needs to invest keeping his/her risk profile and regular income needs in mind. Liquidity of an investment should also be considered as products with a long lock-in period could create problem during retirement.

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