Can someone suggest what is the best fund for a senior citizen? Is it okay to invest in equity funds?Asked
Investments made by senior citizens have traditionally been in the fixed deposits and various other government fixed income schemes. The primary objective of an investment by a senior citizen is capital protection along with a fixed regular monthly income to manage the routine expenses. Therefore, the investment is characterised as low risk, moderate returns and moderate to high liquidity.
There are various mutual funds which lie in the category of above stated objectives. Debt, balanced and liquid mutual funds are the main categories fulfilling these objectives. For a senior citizen, 70-75% of the investment should be in debt schemes and remaining in equity schemes. There can be some variations in this percentage based on the investor’s risk taking ability and long term goals. Also the investor should prefer dividend plan over a growth plan so that there is constant flow of income from the fund in the form of dividends.
It is completely okay to invest in equity mutual funds if the investor has an investment period of more than 3 years and investor has the ability to take moderate to high amount of risk. In case of senior citizens, a large cap fund would be suitable as these are less risky compared to other equity mutual funds, provide returns in the range of 15-18% and there are less chances of capital getting eroded in the long term. These funds also help to beat normal inflation in the economy.
Links to some of the top performing balanced and equity funds are provided below:
Senior citizens generally want to invest in financial instruments that carry low risk and provide steady income. Debt mutual funds are a good option for such investors.
Equity mutual funds are also a good option to invest in but in a relatively lower proportion if the investor is a senior citizen.
Some of the good debt mutual funds to invest in are:
Debt funds are more safe and less volatile than equity funds, and hence a better option to invest the majority of amount in.
A second option to invest in is a debt oriented hybrid fund which invests majority of its corpus in debt (60-75%) and the remaining in equity instruments. These funds carry slightly higher risk than debt funds but also give higher returns.
Some of the good debt oriented hybrid funds are:
As any prudent investor would, it is important to first identify and understand the investment objective and risk appetite before making an optimal investment decision. As you are a senior citizen, we assume that you do not want to take heavy risk exposure.
At Groww, there are many mutual fund schemes available for risk averse investors who seek more than FD Returns. One of our name-says-it-all-scheme is the Better Than FD Returns Low Risk. The fund has till date provided an annualized return of 8.39% by investing in schemes that offer only marginally higher risk as compared to Fixed Deposits. This fund is one of the top portfolios offered by Groww. The minimum investment in this SIP is Rs. 1000 per month and investment can be made for a period ranging from 1 year to 5 years, though investing a higher amount will enable you to earn better returns.
You can also invest your money in Park Your Money - Safe Funds, another portfolio at the lower risk end of the continuum of portfolios offered by Groww. It has provided a historical annualized return of 7.12%. Minimum investment in this scheme is Rs. 2000 per month and the investment horizon can range from 1 year to 5 years.
If you are comfortable with taking some degree of risk, you can consider investing in Start Investing with Rs 3000 - Moderate Risk as an investment option. The scheme has generated an annualized return of 17.57%, which is apropos its moderate risk exposure. A minimum investment each month will enable growth of your capital to Rs. 38,814 at the end of one year at its historical rate of return, though historical return is merely indicative, and not a guarantee, of future performance.
You can view other investment options available here. You may also contact Groww where our team of highly skilled and professional managers can help in designing a plan specially suited for you.
Being a senior citizen, it depends on your father whether he wants to be absolutely risk free or is willing to take some amount of risk.
Now, by investing into fixed deposits, he is risk free , but at the same time he'll be getting less interest rate of return on fixed deposits.
Mutual funds are mainly categorized into 3 types depending on the type of risk one needs to take:
1) Debt mutual fund: Debt Mutual Funds mainly invest in a mix of debt or fixed income securities such as Treasury Bills, Government Securities or Corporate Bonds etc.
2) Equity mutual fund: It is a category wherein investors' money is invested in stocks of companies
3) Balanced mutual fund: It gives a mix of equity and debt mutual funds.
Now, in terms of volatility and risk that your father is willing to take following order is suggested:
Debt mutual fund < balanced mutual fund < equity mutual fund
Considering debt mutual fund to be least volatile and risky, followed by balanced mutual fund and equity mutual fund.
But, the problem with debt mutual funds is that of taxation, when an investor withdraws money from debt mutual fund he will be taxed whereas if money is withdrawn from equity mutual fund post one year it is not taxed.
Therefore in order to gain fully from debt mutual fund, the investor needs to invest his money for at least 3 years in the fund.
Balanced mutual funds have invested 65% of investors' money into equities and therefore they carry a considerable amount of risk.
The most risky being equity mutual funds of all 3, but taxation norms are on easier side as compared to debt mutual funds.
Following are some examples of debt, equity and balanced mutual funds you can consider to invest in:
Debt mutual fund:
1. HDFC Medium Term Opportunities Fund
2. IDFC Money Manager Fund - Investment Plan
3. IDFC Super Saver Income - Medium Term
4. Kotak Corporate Bond Fund
5. Aditya Birla Sun Life Floating Rate Fund - LT
Equity mutual fund:
Large Cap Equity funds wherein companies have large capitalization in the stock market
1. Aditya Birla Sun Life Top 100 Fund
2. Invesco India Dynamic Equity Fund
3. Kotak Select Focus Fund
Small Cap and Mid cap Mutual funds
1. Aditya Birla Sun Life Small & Midcap Fund
2. L&T Emerging Businesses Fund
3. L&T Midcap Fund
Balanced mutual fund :
1. Reliance Regular Savings Fund - Balanced
2. Aditya Birla Sun Life Balanced 95 Fund
3. HDFC Balanced Fund
4. L&T India Prudence Fund
5. Canara Robeco Balance
There is a famous say in financial management that “any investment made should be appropriate for your age”, same apply to investment in mutual funds too. When you are at young age, you can invest in highly risky and volatile mutual funds with high potential of growth and returns, as time is in your side to make up for any losses incurred over the course of time. But exact opposite is true, as you inching towards your retirement age. For senior citizen investing in mutual funds requires be more conservative approach with short term horizon in mind.
Debt funds are best suited for senior citizen for investing their surplus amount of money lying idle with them, to earn better returns than normal saving accounts or bank FDs with very low risk involved. Debt fund is a mutual fund which invests most of the money gather from investors into fixed income instruments like corporate bonds, government bonds (both state and central), bonds issued by banks, certificate of deposit, treasury bills etc. Average return on debt mutual funds are around 9-11% annually. Also, no deduction of taxes or TDS on the earning from debt funds.
But if you are looking for slighter better return then debt mutual funds and have lumpsum amount in your hand then you should consider large cap funds which are basically type of equity mutual fund. In large cap fund, a large portion of investment is done in companies with large market capitalization. These companies are strong, reputable and trustworthy. Large cap companies are mature and firmly established players in the market having a strong corporate governance practices. Also, these companies are well researched and highly followed in market. Large cap funds may give you good returns on your lumpsum investment over the long term. The companies in the large cap funds portfolio are steady compounders and pay dividend on regular basis. They are ideal for investors with low risk appetite.
Hope I answered your question.