Types Of Mutual Funds Retirees Should Hold In Their Portfolio
Apr 23, 2019

Author: Divya Grover

(Image source: Image by mohamed Hassan from Pixabay)

Retirement is the time to relax and enjoy the fruits of years of hard work. Assuming that you made good investment choices in your youth, you will have a good retirement corpus for your old age.

Now the question arises, how you will manage your investment portfolio once you have retired. This is important because your regular source of income stops and you become dependent on these investments to manage expenses during retirement.

While some expenses may reduce, new expenses might crop up. After retirement, your lifestyle will change and you may still have some goals to achieve.

Thus, prudent financial planning and handling personal finance should be the focus even after you retire. Many of the investment options available can empower you to be financially independent even after you have hung up your working boots.

Bank fixed deposit (FD) is, of course, the preferred choice for many retirees as FDs provide almost a risk-free nominal rate of return. For a senior citizen, banks offer a higher rate of interest compared to non-senior citizens. Additionally, with FDs you can address your liquidity needs by choosing the tenure carefully and deploying the money in multiple banks.

Another popular choice is to invest in the Senior Citizen Saving Scheme (SCSS). This scheme currently gives you around 8.7% rate of interest.

One less popular but worthy investment avenue for retirees is mutual funds. As a retiree, you should consider parking a portion of your retirement corpus in various types of mutual funds. It may be surprising to read this, as senior citizens are generally advised to stay away from mutual funds.

With the increase in life expectancy, due to access to better healthcare facilities, investing in wealth-creating investment avenues such as mutual funds, particularly equity-oriented funds that can counter inflation better, is important. This ensures your hard-earned money works for you and lasts your entire life span.

To suit the requirement of different types of investors, including retirees various types of mutual funds are available. If you are a retiree, you can diversify your investments across Large-cap funds, Value Style Funds, Multi-cap Funds, Hybrid Funds, Short Duration Funds, Dynamic Bond Funds, and Liquid/Overnight Funds in a prudent manner.

Table: Allocation to mutual funds for retirees

Portfolio Type Allocation
Equity Funds
Large-cap Funds 15-20%
Multi-cap Funds 10-15%
Value Style Funds 15-20%
Balanced Hybrid Funds 15-20%
Debt Funds
Liquid/Overnight Funds 5-10%
Short Duration Funds 15-20%
Dynamic Bond Funds 10-15%
Note: The table is for illustrative purpose only


​As a retiree, you should steer clear of mid-cap funds and small-cap funds, as these are very high-risk-high-return investment propositions.

Large-cap funds invest in stocks of blue-chip companies. It offers better stability for investors compared to small and mid-caps. Hence, these have relatively lower risk. Multi-cap funds invest in equity stocks across large-cap, mid-cap, and small-caps in varying proportions. Though these options are considered to be risky, multi-caps allow you to tap into the high return potential of small and mid-caps and offer the stability of large-caps.

'Value funds' follow a value-investing approach in portfolio construction and have the potential to reward investors well in the long-term.

On the other hand, Hybrid funds invest in a mix of equity and debt to provide investors with the benefit of diversification. The equity component of the fund enables capital appreciation when the market is high, while the debt component provides a safety net during the bear phase. You can invest in balanced hybrid funds as it is more preferable for retirees. According to SEBI categorization, the weightage of debt and equity can vary from 40-60% of total assets in balanced hybrid fund.

You can consider liquid funds and/or overnight funds as a substitute to bank FDs and take care of your liquidity needs as a retiree. You can park your funds for a few days, months, or up to a year in these types of debt & money market instruments. However, it's important to remember that investing in debt funds is not risk-free.

[Read: Liquid Funds v/s Overnight Funds: Where To Park Your Short-Term Money?]

While traditional investment avenues like bank FDs, SCSS, and other small saving schemes provide you with capital preservation, safety, and regular income, mutual funds will help you in capital appreciation, countering inflation, and give you instant access to funds (since mutual funds are highly liquid investment avenue).

This means that traditional investments options and mutual funds are both important for retirees. Also remember to set aside some amount towards contingencies. Before you start investing, be clear about your goals, risk appetite, investment horizon, and estimated life expectancy. This will help you secure your financial future.

"As in all successful ventures, the foundation of a good retirement is planning." - Earl Nightingale.

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