Typically, you don’t find many seniors investing in equities, mutual funds and SIPs unless they started years back. The reasons for this could be varied. Firstly, they may not have the extra corpus to invest at that age. Secondly, the reputation of volatility associated with stocks and mutual funds can be scary. A third reason may be the fact that, usually these investment options are meant for long-term planning attached to a goal like education or marriage.
Normally, people get into these options in order to prepare for their retirement with an extra corpus and not after retirement. Also, the risks involved with the stock market may be keeping most of the seniors out of this segment. At this age, they look for a steady monthly income, zero risk investments and easy liquidation options that are absolutely safe. Hence, you mostly find senior citizens preferring to go with post office schemes or fixed deposits in banks. And this probably is also the reason, why our Finance Minister Mr. Arun Jaitely, announced a whole lot of sops on these accounts, for the seniors, in the Budget 2018. Considering the phase of life that they are in, this seems fair enough. However, it is always good to know that there are options out there that may be explored. Here is a rundown of a few things to help you decide whether mutual funds and SIPs are for you.
Understanding mutual funds and SIPs
A mutual fund is a professionally managed fund that brings together investors under a common umbrella and then invests their money in bonds, stocks, and other such securities. People can opt to buy mutual funds directly from the fund companies or go through advisors and wealth management companies. Mutual funds are defined by Net Asset Value (NAV). When you purchase a mutual fund, you will be assigned units of NAV in multiples, depending on the amount you have invested. Depending on the fund’s holdings, these NAVs fluctuate up or down. So at any given point in time, you may be making a profit or also end up in a loss.
A Systematic Investment Plan (SIP) is a way of investing in mutual funds. The advantage here is that a person can choose to invest a small sum every month or quarterly and need not shell out a bigger amount in one go. This can also provide a benefit of buying the funds at a lower value at times and can help average the buying value of the NAVs. Another advantage is the fact that you are using small amounts to build a bigger investment while reaping the benefits of the market in the long run.
Are they for you?
The answer to the question whether mutual funds and SIPs are for you largely depends on your current financial situation and your needs. If you are comfortable financially with a reasonable amount available to run your monthly needs, then perhaps you should consider investing in mutual funds. And a SIP is the best way to go about it for senior citizens. You could allocate a small amount that can be spared into it every month or so and allow that money to compound and benefit you in the long run. Retirement is, mostly, a second innings for most people in our country. The life spans have increased and people are expected to live longer. So, even if you start this investment after retirement, it can benefit you. You can also invest in the name of your child or grandchild. The power of compounding interest will yield huge benefits when you start it for a young one. You can tell your kids that you will run the SIP for your grandchild for say the next 10 years and then the parent takes over.
However, a word of caution is that the investment should be done only after thorough research. In fact, if you take the help of an investment advisor, it is important to set down and communicate your investment goals clearly. Read the prospectus clearly and ensure that the investment is happening only in large-cap or balanced funds. These can, by and large, protect your investment, even if you may not gain much. With the small and mid-cap funds, you will always run the risk of losing out on your invested capital. Hence, that is avoidable.
Debt mutual funds
Most fund managers advise senior citizens to go in for debt mutual funds as these offer options of short-term returns with low risk. However, there are also the longer income funds if you can take moderate or higher risk. The debt mutual funds invest your money in fixed income securities like bonds and treasury bills. The multiple investment options available in this are Monthly Income Plan (MIP), Short Term Plan (STP), and Fixed Maturity Plan (FMP) etc. However, the budget 2018, has also brought in a Long Term Capital Gains (LTCG) tax and income from this may not come under any of the sops announced for senior citizens. So it is better to research this out, understand the implications and then choose to invest.