As life expectancy of the average Indian goes up, maintaining the desired lifestyle post-retirement with right investment moves has assumed much significance for senior citizens.
While an increasing number of them are aware of the wide-ranging options available, the fact remains that not many are keen on looking beyond traditional instruments.
Typically, most senior citizens are risk-averse and look for instruments yielding a regular income. Hence, their portfolio usually comprises 9% senior citizens savings scheme, LIC annuity plans, small savings schemes such as national savings certificates, post-office deposits and the like.
Experts say they should explore other avenues too, in addition to these popular instruments.
Says financial planner Gaurav Mashruwala: “While planning a portfolio for senior citizens, three types of instruments play a key role — liquid instruments to meet contingencies, growth-oriented instruments to beat inflation and avenues promising a regular income stream.” With this in mind, he suggests that senior citizens should keep one month’s expenses in cash.
Money for covering 4-5 months’ expenses can be parked in a fixed deposit linked to savings bank accounts. “For regular income, they have two options: post-office time deposits and senior citizen savings scheme that offer a return of 8% and 9%, respectively.”
Beyond this, if they need money for routine expenses, they can opt for monthly income plans (MIPs). A point to bear in mind here is that MIPs should not be assumed to be risk-free as equity exposure is involved here.
To fulfil the growth objective, they can look at investing directly into equities or through equity-oriented funds. Gold is another option, mainly for capital appreciation.
Though most senior citizens have a policy of steering clear of anything related to equities, Prerana Salaskar-Apte, a partner with investment advisory firm The Tipping Point, is of the opinion that equities cannot be ignored.
“Equity is a must for any portfolio to ensure that the returns are meaningful. Equity is not only for the rich. Without equity, a portfolio is not capable of growth. Any fixed income product will, at the most, give a pre-tax return of 9%, which is simply not enough to beat inflation and provide a substantial income stream,” she explains.
Broadly, her recommended portfolio for senior citizens includes the senior citizen scheme, mutual funds, equities and pension products. She bats for mutual funds because in addition to eliminating most tricky issues concerning investments, they also offer several tax advantages.
Investors who look for some certainty in terms of returns and cannot deal with volatility in their income streams could go for pension products. Both planners believe that reverse mortgage could prove to be an effective income-generator if senior citizens’ income streams are under stress.
That’s about the instruments that should have in their portfolio. What about the avenues they need to steer clear of? Replies Mr Mashruwala: “They should avoid investing in illiquid assets like bonds with 10-year lock-in periods. Although post-office time deposits and senior citizens savings schemes also entail a lock-in, they offer returns at regular intervals.”
According to him, senior citizens should also stay away from avenues that are beyond the purview of the regulators. Dealing with organisations that accept money privately and provide returns in the form of interest is a strict no-no. Unit-Linked Insurance Plans (ULIPs) also should not be on their radar, at least until the current level of expenses pertaining to these instruments remains unchanged.
Ms Salaskar has some tips to offer: “Do not invest in any instrument that is difficult to comprehend, especially in terms of risk involved.
There are products like futures and options, which are not easy to fathom and best left to investors who have age on their side.” Senior citizens should also remember that insurance products/mutual funds cannot give assured returns; hence, they need to be wary of any fund/insurance company advisors who promise such returns.
If returns on their products sound too good to be true, they probably are and should be, therefore, avoided, she points out. It is advisable to shun finance companies which promise you “double your money” within an unreasonable time-frame.
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