Does it make sense to invest in equity mutual funds after retirement?

Gone are the days when retired folks were asked to stay away from equity mutual fund schemes. Many financial advisors are asking their retired clients to invest in equity mutual fund schemes these days. They reason that it is important to preserve the capital. However, many retired folks are still sceptical about investing in equity.

“There is an increase in the lifespan of people which makes it important for them to have more money. Also, the thought process that children are your retirement plans has changed,” says Suresh Sadagopan, CFP, Ladder7 Financial Advisories. He believes that these factors have made equity an important part of the post-retirement investment of an individual.

Are you wondering why should you invest in risky stocks just because you are going to live longer? Well, if you insist on investing in a safe fixed income instrument like a fixed deposit after retirement, your capital would lose value over a period of time. This is because safe investments hardly beat the inflation rate and you would be forced to dip into your capital over a period.


For example, if you are getting 6 per cent on your fixed deposit when the inflation rate is 8 per cent, you are actually earning negative interest or losing the value of your investment.

“People generally live for 25 -30 years after retirement and they can’t take a risk of their retirement corpus vanishing in 15 years,” says Suresh Sadagopan.

Tread with caution
“Retired people who can invest with a long term view and are not dependent on capital gains from equity for periodic expenditure could consider investing in equities,” says PVK Mohan, Head of Equity, Principal Mutual Fund. “The allocation preferably could be much smaller proportion in comparison to debt to keep risk under control.”

Experts believe that retired people should invest in safer instruments like Senior Citizen Savings Scheme, Post Office savings Scheme, bank deposits, etc to generate a regular income to take care of their monthly living expense. If they have extra money after providing for this, they can consider parking a part of their corpus in equity mutual fund schemes.

Mohan says that investments in equity mutual fund schemes should be with the intention of growing it, not to meet regular expenses. “Allocating a small or modest part of portfolio to equities will be safer,” he adds.

Sadagopan says that the allocation to equity should not be more than 35-40 per cent.

Finally, if you are convinced about the merits of investing in equity, you can pick a mutual fund scheme that would match your risk profile. For example, if you are new to the stock market, you can pick up an equity-oriented hybrid scheme. If you can take a little extra risk, you can consider investing in a large cap or multicap scheme.