Financial literacy in India has always been a problem. However, things are changing rapidly of late, and citizens are investing their money in financial markets. There has been an unprecedented ascent in the number of new Demat accounts in India. From the official data, India has close to 7 crore Demat accounts as of June 2021, up from 4.08 crore in FY20 and 3.59 crore in FY19.

Mutual funds are getting equal traction when it comes to money being invested and subscription in NFOs. It is a common notion that mutual funds are too risky and thus not the right financial instrument for senior citizens. However, there are mutual funds for senior citizens too that have been designed to keep their risk appetite and needs in mind.

What are Mutual Funds?

A mutual fund is a financial instrument through which investors indirectly invest in equity shares and bonds (government and corporate). A senior citizen mutual fund pools money from several investors, and then the fund managers invest it in securities to generate returns for the investors. Thus, you as an investor will not have to track the market regularly. The fund manager will manage it for you and charge his/her commission.

What are the different types of Mutual Funds available in India?

There are diverse types of mutual funds in India, which are shown below. Equity funds invest predominantly in equity shares of companies. Debt funds invest mostly in government securities, corporate bonds, commercial papers, etc. Hybrid funds are a fusion of equity and debt funds.

Equity Funds Debt Funds Hybrid Funds
Large Cap Fund Overnight Fund Conservative Fund
Mid Cap Fund Liquid Fund Balanced Fund
Small Cap Fund Money Market Fund Aggressive Fund
Value Fund Ultra-Short Duration Fund Arbitrage Fund
Multi-cap Fund Short Duration Fund Balance Advantage Fund
Contra Funds Dynamic Bond Fund Multi-Asset Allocation
Sectoral Fund Gilt Fund Gold Funds
ELSS Credit Risk Fund Equity Savings

Reasons why Senior Citizens should invest in Mutual Funds

Traditional financial instruments like fixed deposits, recurring deposits, and Post-office deposits are there, but their returns are on an all-time low currently. On the flip side, inflation is currently high in India; thus, traditional investment avenues are not generating inflation-beating returns for you.

Here are a few reasons why you must invest in a senior citizen mutual fund:

Diversify your investments:

If you already have a life insurance policy, bank deposits, and other safe financial instruments, then mutual funds for senior citizens will diversify your portfolio. The additional returns from here will balance the low returns you get from safe financial instruments. You can invest in a gold ETF (Exchange Traded Fund) or gold mutual fund instead of buying physical gold that incurs security threats and making charges.

Types of Mutual Funds:

If you still see equity markets as a risky bet, then there are debt mutual funds, gold mutual funds, money market funds, and hybrid mutual funds for senior citizens. You can invest in any of the multiple types of funds available in India based on your risk-taking capability.

High Liquidity:

Mutual funds generally are more liquid than fixed deposits that come with a fixed tenure. You can sell your holdings anytime and liquidate to get the money. Money market funds and liquid mutual funds are highly liquid as they invest in liquid assets, like bonds maturing in the next 91 days, government securities, etc. Besides, there is no entry or exit load in these senior citizen mutual funds.

Decent Returns:

Mutual funds generally givehigher returns than other traditional asset classes, like gold, bank deposits, etc. There is an element of risk, but the returns are much higher as well. This risk can also be managed by investing in low-risk funds, like liquid funds, debt mutual funds, money market funds, etc.

Less Risky than Equity Investments:

In mutual funds for senior citizens, there is a fund manager who is investing money on your behalf using his/her These fund managers are professionals with years of experience in the markets, and are well-equipped to generate high returns. If you choose to buy and sell shares with your limited understanding, then chances are you can blow up all your savings as direct equity investment is riskier.

Compounding Effect:

Compounding effect or compound interest, is commonly known as the Eighth Wonder of the World. The compounding effect is visible in mutual funds for investors having a long-term investment horizon. Are you planning for higher studies or the wedding of your grandchildren in 10-15 years from now? A senior citizen mutual fund can deliver solid returns over these 10-15 years through compounding.

These were some of the key reasons why senior citizens should invest their hard-earned money in a senior citizen mutual fund. A mutual fund is an asset class that allows you to invest in debt markets, equity markets, and gold together, unlike other asset classes.

Factors to consider before selecting a Mutual Fund

There are certain factors that you should give proper thought to before investing your money in a mutual fund. These factors are:

Financial Goals

There must be a financial goal, and thus, you have thought to invest in a mutual fund for senior citizens. Quantify your goal (amount needed to achieve that goal) and attach a timeline to it (5 years, 10 years, 15 years, etc.) Then, choose the type of fund you want to invest in.

Cash Requirement

If you might need cash in the near future, then prefer going for money market funds or liquid funds. If you are here for a longer inning, then go for an equity mutual fund.

Risk Appetite

If you are a risk-averse investor, then invest in a debt fund or any gold fund that is more stable. However, if you can take some level of risk, then an equity fund is a good bet. A hybrid fund is good for medium risk and long-term investing.

Cost of a Fund

While comparing several mutual funds, do check for a fund’s entry & exit load, expense ratio, dividend policy, transaction charges, etc. These factors are also important apart from a fund’s historical returns.