I am 60 years old and want to invest my retirement proceeds in mutual funds. Please advise

I am 60 years old. I have retired from service two months ago. I want to invest my retirement proceeds in mutual funds. Should I invest in balanced schemes?

To begin with, do you have a monthly pension that would take care of your living expenses? If yes, you can go ahead with your investments based on your various goals. If you don't have a monthly pension (or a steady income) to meet your living expenses, your first priority should be to ensure a steady income. You should start your investments only after that.

If you have a steady income
As said before, if you have a steady source of income that is more than enough to take care of your living expenses, you can think of investing your entire retirement proceeds as per your various financial goals. As a rule, pick debt mutual fund schemes or bank deposits to meet your short-term goals that are less than three years away. For long-term goals that have to be met after five years or more, you can invest in equity mutual fund schemes.


If you do not have a steady income
Your first priority should be to ensure that you have a steady income to take care of your living expenses. You should opt for government-sponsored schemes like Senior Citizen Savings Scheme or Post Office Monthly Income Scheme to secure a guaranteed income. Mutual funds do not guaranty returns. So, it is not wise to bank on them for your primary income.

Once your primary income is taken care of, you can proceed with your investments as per your financial goals.

A few pointers...
While picking up a debt scheme, you should make sure that your investment horizon and the profile of the scheme matches. For example, if you are parking your money for a few weeks or months, you should pick up a liquid scheme as they are least volatile. If you are parking the money for a few months, you can opt for a ultra short-term scheme. If you are investing for a few years, you can pick up a short-term scheme or dynamic bond scheme.

As for equity scheme, you should invest in them only if you can stay invested for at least five years. Also, you should have the stomach to digest the volatility typically associated with the stock markets. This rule applies to even equity-oriented balanced schemes. These days many investment advisors are pitching balanced schemes as zero-risk investment. This is not true. Balanced schemes invest at least 65 per cent of their corpus in equity. Stocks are risky, even if it is only 65 per cent. Sure, the debt part of the portfolio may help balanced schemes to manage the volatility better, but that doesn't make them risk-free.

Retired folks should pick Equtiy Linked Savings Schemes (ELSSs) or tax-saving equity mutual fund schemes to save taxes. Other than that, they can also invest in largecap schemes and diversified (multicap) schemes.

You can use equity mutual fund schemes to supplement your primary income. You can either opt for a dividend option or sell a part of your profits to generate extra income. Equity mutual fund schemes qualify for long-term capital gains tax (zero at the moment) if investments are sold after a year. You also don’t have to pay tax on dividends. Even the mutual fund houses do not pay Dividend Distribution Tax (DDT) on equity funds.

You might come across many people discouraging you from investing in equities. They would tell you that it is not suitable for you because it is risky. Sure, it is risky. But if you have the time in hand and surplus fund that can be deployed for a long period, you should go ahead with your investment. Remember, you are going to live at least 20-25 years more. It is very important for you to preserve your capital to safeguard your purchasing power. Inflation can render your savings worthless over a long period.