In retirement zone? Get serious about investing

Investing doesn’t stop at retirement, only your work life does. In fact, with a steady source of income gone, it becomes that much more important to protect and grow your nest egg through the sunset years.

The need to rejig investments in order to earn better returns, while ensuring capital protection and liquidity to meet contingencies, cannot therefore be overemphasised. And this should be done based on one’s age, risk appetite, predictable income (through pension, rental or other sources) and other circumstances in life, say experts.

“We look into the quantum of income, required returns and liquidity, tax bracket of the clients and risk appetite before advising the investment avenues for retired. Inflation and superior tax returns are other factors considered while planning,” says Amar Pandit, financial planner and CEO, My Financial Advisor.
Here are some of the investment avenues available to a retired person.

Debt
i. Senior Citizens Savings Scheme (SCSS)
Anyone who has attained 60 years of age can open an SCSS account. A person aged 55 years or more but less than 60 years, who has retired under a voluntary retirement scheme or a special voluntary retirement scheme, is also eligible to open one within three months from the date of retirement. The minimum investible amount is `1,000 and the maximum `15 lakh. No withdrawal shall be permitted before the expiry of five years from the date of opening of the account. The applicable interest rate is 9% per annum, payable quarterly. This interest can be automatically credited to a savings account provided both the accounts are in the same post office. The depositor may extend the account for a further period of three years.

ii. Fixed deposits
For the risk-averse, nothing works like the good old fixed deposit (FD), which pays a fixed rate of interest until a specified maturity date. “Senior citizens should take advantage of rising interest rates by opting for long-term fixed deposits,” says Pandit. Funds placed in a fixed deposit cannot usually be withdrawn before maturity or can only be withdrawn with advanced notice or by paying a penalty.

iii. Post Office Monthly Income Scheme (POMIS)
Investment in POMIS has a comparatively longer lock-in period up to 5-6 years, but it ensures a safe and sure monthly income. It offers a rate of interest of 8% and a bonus of 5% at maturity and is credited automatically to the savings bank account. “Both in POMIS and the SCSS, premature withdrawal is permitted with a penalty of 2% and 1.5% of the deposit amount, respectively, whereas National Savings Scheme, or NSC, is completely illiquid. If premature withdrawal is needed, then NSC is not an option. Interest income from all these are taxable,” says Satkam Divya of Rupee Talk.

iii. Fixed maturity plans
These are closed-ended debt schemes run by mutual funds with predetermined maturity dates.

iv. Non-convertible debentures
These are in the nature of loans given to a company that cannot be converted into equity and pay considerably higher interest than convertible debentures. But there is a need to assess post-tax yields before investing in NCDs.

Equity
i. Direct exposure
Experts tend to advise retired people against investing directly in equities in view of the risks involved. But for those who can afford to take the risk, an exposure of 20-40% may be in order.

ii. Investing through mutual funds
Monthly income plans, or MIPs, are a good option, as the equity exposure is limited to 15-25%. These plans invest up to 75-80% of the corpus in debt instruments and the rest in equity instruments and provide a specified monthly payment to the investor.

There is no thumb rule as to how much a retired person should have exposure towards equity, says Dhirendra Kumar, CEO, Value Research. “If a person is total risk averse, then he should put aside money in MIPs, whereas people with larger risk appetites can look at balanced funds, too.”

One can also consider putting money in large-cap funds and index funds.