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ULIP INSURANCE

Mutual Fund schemes that a Pensioner can invest in

Jagrity Sharma Jagrity Sharma 03 June 2019

They say retired life is nothing less than leading a golden life. But, it is possible only if you invest smart. Here, we list out a few best mutual fund schemes that you, as a pensioner, can invest in.

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I am sure you find it challenging to choose a retirement plan and an investment option.

But, very often, when you take someone’s guidance on the different investment avenues available, with the plethora of plans, schemes and other financial terms, you may certainly fall in the ‘paradox of choice’.

You might want to invest in a plan that fulfils your current and future financial needs. With retirement in the picture, you should definitely plan and factor in the following things:

  • How toning your debts down would help, thereby reducing strain on your income.
  • Because you are retired, calculating your daily expenses as they won’t disappear in thin air.
  • You will need money for your medical bills which definitely will rise as you age.
  • Transportation costs too will rise as you age.
  • Other aspects such as estate planning.

Investing in mutual funds is one good option that a pensioner can think of. To start with, undertaking a process of Know Your Client (KYC) is essential. You may get it done at any of the fund houses. However, this process is essential for investing in avenues such as mutual funds.

If you are new to mutual funds, here are a few basics. Mutual funds can be broadly classified into equity and debt funds. For pensioners, experts suggest to invest in a ‘debt fund’ and not move to other risky category like ‘equity funds’.

Pros of investing in mutual funds before retirement

Long term investment can ride out short-term fluctuations

Investing in equity funds means long term investments. Simply put, you could easily ride out the short-term fluctuations and reap higher returns.

Tax-saving

If you opt for an ELSS (Equity Linked Savings Scheme) Mutual Fund, you can save tax under Section 80C of the Income Tax Act, 1961 and therefore enable growth. Experts advise avoiding mutual funds that particularly invest only in large caps since returns are low, usually about 10% per year. This is because investments are made considering the retirement goals and above all, are for long-term. It is advisable to choose a mix of large caps as well as midcaps (where returns are better at 14%). Such funds also aid in beating the normal inflation.

You can lock-in your funds till your retirement or can also redeem before the same because these mutual fund schemes are expected to pool savings for retirement.

Cons of investing in mutual funds before retirement

Mutual funds do not provide death benefits and your nominee becomes eligible only for the market value of the fund

Since the main motive of investing in mutual fund is your retirement planning and not to gain profit, equity funds are impulsive in the short term. Therefore, it doesn’t make sense to take the risk because it may not be worth the returns.

Rigid exit loads for early redemptions

In order to limit people to take an early exit before retirement, Mutual fund houses have taken steps by lining up stiff exit loads for early redemptions. Therefore, it is essential to check the exit charges in case you plan for an early redemption. Here is a list of some of the good debt mutual funds that pensioners can think to invest in:

ICICI Prudential Gilt Fund

The investment objective of the ICICI Prudential Gilt Fund is to generate steady but consistent returns from a host of government securities across different maturities through proactive fund management. This basically aims at controlling interest rate risk. This plan will invest in guilt funds, including Treasury bills with medium to long term maturity, keeping in mind that the average maturity of the portfolio won’t exceed 8 years. Therefore, it is best suited for investors who wish for long term wealth creation.

Aditya Birla Sun Life Medium Term Plan

This mutual fund scheme is an open ended medium debt scheme. It is apt for investors who wish to invest for 1 to 3 years and are already looking out for an alternate option to bank deposits. Also, someone who is looking for investments in debt and money market instruments can invest in this plan. The main investment objective of the Aditya Birla Sun Life Medium Term Plan is to generate capital appreciation and a regular flow of income by proactively investing in debt securities portfolio with a medium term maturity.

SBI Magnum Gilt Long Term Plan

This plan is an open-ended Gilt scheme. The main objective of the Magnum Gilt Long Term Plan is to offer the investors with returns that are generated through investments made in government securities that are issued either by the Central or State Government. This plan is suitable for those who wish to invest money for a longer term with ‘safety of their investments’ being their main priority.

Conclusion

Given the pros and cons of investing in mutual fund schemes, a best-suited plan should be the one that meets all your financial requirements as a pensioner. Above all, this mutual fund scheme should be appropriate according to your budget, age, financial goals and in line with your investment appetite.

Recommended Read: How Side Pocketing Affects Mutual Fund Houses and Investors

Jagrity Sharma
Written by Jagrity Sharma
A bibliophile who hates alliterations, but loves cream, comics and content immensely! On another note, a content marketer who leverages the power of words to explain...almost anything!