Senior citizens ride the equity bull

So you thought that investors of our parents' generation were conservative in their investments and averse to taking risks. Well, experts have stood this little theory on its head.

A combination of changing lifestyles as well as monetary policies means that this age group is now pushing the envelope – investment-wise.

“The fact that investors in the 65 + age group are now more risk-taking is true,” says Gautam Kalia, Head – Investment Solutions, Sharekhan by BNP Paribas about investors from this age group now taking more risks vis-à-vis their investments.

“This (65 + investors going into risk-taking investment decisions) is a trend that we have certainly noticed in the past several years,” says Adhil Shetty, BankBazaar.

The reasons for this interesting trend are quite varied.

“A large part of this is because of how tech-savvy customers are today,” says Rahul Jain, head, Edelweiss Personal Wealth Advisory about 65 + investors branching out into new investment options.

Thus, technology, especially with smartphones, has revolutionised the way we comprehend and communicate. Information is readily available and user interactive mobile applications have proved to be a game-changer.

Next, FD (fixed deposit) traditionally viewed as a 'safe' haven are not as attractive as they used to be, in the reign of falling interest rates – thus making equities not as unattractive as they used to be for the 65 + investor group.

And yes, factor in inflation as well as that your income (salary) may not be happening and you have a totally different perspective.

"Exposure to equities can help senior citizens in overcoming the challenge of outlasting retirement corpus,” informs Sahil Arora - director & group head, investments, Paisabazaar.com.

Do note that fixed income instruments seldom beat inflation rates and those in higher tax slabs can actually lose money after factoring in taxes from their inflation-adjusted interest income. Rising life expectancy and increasing healthcare costs further increase the risk of running out of retirement portfolio.

“Being at this age for most individuals means an end of major financial obligations,” says Harsh Jain, COO, and co-founder of Groww, an investing platform. The children may have been settled; their education is taken care of, home loan if any is paid in full and you have your insurance in place. Especially if they have an assured sum as income from previous investments, the ability to take risks with disposable wealth may increase. On the other hand, individuals who feel their retirement corpus is not sufficient may want to invest in equities for more than five years to compensate for insufficient funds.

And the data from the experts substantiate this trend.

Edelweiss has noticed over a 100% increase in investors in the 65 + bracket trading in the F&O segment in a year-on-year increase. Providing some more details, the brokerage notes that in this age group some 70% men and 25% are women customers which is significant given that the percentage of women investors was 14% for FY17-18 or an increase by 11% in FY18-19.

“While debt is still the most popular investment category, there is a significant number of investors in this age group (65 +) with about 35% of their AUM (assets under management or corpus) assets allocated to equity,” says Jain. Under the equity portfolio, about 37% is invested in large-cap funds, an indication that senior citizens are aware of the risk-return trade-off associated with equities as well as the ways to cushion their safety.

The tax saving ELSS fund category is also a popular investment choice for individuals in this age group.

Senior citizens are increasingly categorising their retirement corpus into short-term, medium-term and long-term investments.

The planning is that you secure your liquidity for 3-5 years, usually through FDs. For the medium term (6-10) years, SCSS or equivalent is an option.

The rest of the investment does not need to be in debt but in high-class equity instruments.

“As a strategy this works well because equity investments are a long term investment category and give much higher returns compared to debt investments,” notes Shetty about the investment strategy.

“Continued exposure to equities helps solve this problem as equities as an asset class outperforms inflation and fixed income instruments by a wide margin over the long term,” affirms Arora. They are also more tax-efficient than most fixed income instruments.

Within the equity spectrum, it is MFs that have been a primary driver for 65+ investors going into this asset class.

Many large public sector banks have also started promoting equity mutual funds in earnest, leading to increased knowledge and understanding of equity investments.

Balanced funds (now aggressive hybrid funds), in particular, with their regular dividend payouts, have acted as the gateway investment for these investors. It has helped promote investor interest and acceptance of mutual funds and consequently led to direct equity investing in some cases.

There is a clear preference for mutual funds and especially those with a consistent long term dividend-paying track record. Most of these investors prefer large-caps when it comes to individual stocks.

R K Jain an investor in this category agrees with this prognosis. “I am investing in mutual funds that come with moderate risk. Although a majority of my portfolio is debt inclined, I have been investing in ELSS funds to save taxes,” Jain says. “I am willing to invest about 5% of my portfolio towards equity in the coming years, to expect short term gains, say within five years,” he adds.

Most of these investors prefer large-caps when it comes to individual stocks. “However, with investment knowledge and experience comes the ability to take higher risks and that we consistently see across all age categories,” says Kalia.

“Please remember that equities can be very volatile in the short term; senior citizens investing in equities should be prepared to stay invested for a long term, preferably over five years,” advises Arora.

“The secret is that one needs to have a long-term investment horizon to really see the effect of a wealth snowball,” says Jain. For each goal, you should maintain a separate investment portfolio as the time needed to achieve the goal and risk profile over that period will vary. Divide your investments between equity and debt depending on your risk profile and time, is Jain's advice.