Should seniors invest in mutual funds?

Many times we hear about mutual fund investments and the risks associated with putting money into them. Given how most of the mutual funds in the market are invested, older people often stop themselves from investing in them. The fallout from recent market volatility has left many investors with unwanted losses, raising more questions about whether seniors should invest in mutual funds. The idea behind allocating a portion of your profits to mutual funds is to earn returns that not only help build adequate entities but also beat inflation.

The key to success is making your money work for you, regardless of age. Since age is a major constraint for the elderly, it is imperative that they invest wisely. There are a variety of investment options available to seniors. However, what works for one investor may not work for another. Many people misinterpret mutual funds as too risky for large citizen investors. This has caused many of them to opt for other investment options.

However, mutual funds are beneficial for seniors and can be a valuable investment option. Despite the fact that markets are vulnerable to short-term shocks, the mechanisms used here have produced better long-term returns than so-called traditional investment strategies. Each mutual fund invests in a different asset class and provides a different level of return. Mutual fund returns are linked to the market, which means they are never guaranteed. However, this exposure to risk provides an opportunity for wealth creation and growth. Ignorance about mutual funds designed in conjunction with the profile and seniors’ willingness to take risks adds to the recurring mysteries.

Given the idea behind investing in mutual funds is to make decent returns without taking undue risks and not committing to the investment for a long time, say 10 years, seniors may also start putting a portion of their earnings into debt funds. Debt funds yield more returns than bank deposits, including fixed and recurring deposits. Although one might argue that the return on debt funds is similar to the return on senior citizen savings plans or post office deposit plans, the tax advantages of the former ensured a higher internal rate of return (IRR) and, therefore, benefited elderly investors. Regardless, seniors have the advantage of withdrawing money at will, unlike most retirement plans or products such as the National Pension Scheme (NPS) which force withdrawal only after a specified period.

Another benefit of stockpiling money in debt funds is diversification. Mutual fund design portfolios to suit various asset classes. First of all, seniors can start putting money into debt funds for their regular expenses. The remainder of the funds can be allocated to mutual funds that are balanced for a longer period, thus earning the dual benefits of good returns and stability. Alternatively, they can secure their money through Systematic Investment Plans (SIPs) in large-cap funds, thus relieving them from the extreme volatility due to their investments in large-cap stocks. However, different people invest for different reasons, which means they should consider their financial goals, risk profile and investment duration. Seniors with enough liquidity for the next decade can consider investing in the next future. However, they must remember that they will only benefit from the power of compounding if they continue to invest for an increasingly long time.

However, seniors should remember that debt money and debt-oriented hybrid fund investments held for less than three years are subject to short-term capital gains (STCG) tax, and therefore must be paid taxes according to their income tax bracket. Recovered investments are treated as long-term capital gains (LTCG) if the gains are realized after being held for at least three years. After comparison, the LTCG is taxed at 20 percent.

Science enables people to live longer than expected. Some biologists even predict that within a few generations, human life may last more than 100 years. It makes sense to plan ahead. Investing in a combination of senior savings plans and mutual funds will help many achieve financial independence even in their later years of life.


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First posted: Jan 18, 2023 08:03 am ist

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