Best Mutual funds for retired people

Last Updated : March 5, 2020, 5:37 p.m.

We all want peaceful life post retirement and want to enjoy during the period with our children and grand children. All these are possible only when you make a right investment plan and choose the right investment medium. And there is nothing better than investing in mutual funds. But before investing in the funds, analyze how much money you will need at retirement, how much monthly income you need to meet your basic needs, number of years left for retirement and the risk profile. If you have a long term investment goal for retirement, then mutual fund is the best option.

Why Investing in mutual fund is a good option for retirement?

Mutual funds are more flexible investment products which do not have any restriction on payment. You can withdraw in between without any penalty. Depending on your risk appetite, you can choose various mutual fund schemes.

In mutual funds, you can make money in three ways.

• Dividend payment :
Corporation earns profit and reinvest the same in business and share a fraction of profit with share holders in the form of a dividend.

• Capital gains distribution :
There are two types of capital gains, short term and long term capital gains. These gains are distributed to the shareholders and the distribution is declared at the end of the year.

• NAV :
NAV stands for Net Asset Value, which results from the difference between the assets and liabilities of the fund. Mutual fund’s selling and buying process is based on NAV of the trade date. It is calculated by dividing the current market value of the fund with the number of outstanding units.
Mutual funds allow you to start with SIPs, which will help you to get organized and discipline in payment. With small amount, you can build a substantially higher amount for your retirement. Mutual funds also allow you to redeem your lump sum amount any time before or after the retirement. Mutual funds are subject to market risk but with this risk they allow you to switch off your investment into safer avenues for retirement.

Where to invest for good returns for post-retirement life?

A person, who is near to retirement, should invest in large and stable companies. There are many such companies operating in the space of FMCG, pharmaceuticals, which are ideally suited for the desired investment. The retired person should choose the funds that invest in the stocks of companies after checking their previous records and return history.

1. Open ended funds and close ended funds

An open-ended fund is where units can be bought and sold on a continuous basis, allowing investors to enter and exit the scheme whenever they want to.
Close-ended funds are those where unit capital remains fixed and they sell a particular number of units.

2. Debt mutual funds

Debt mutual funds offer you a fixed maturity date and fixed rate of interest. These funds are best bet for retired people as they invest in fixed income securities, government securities, corporate Bonds, and other debt securities that pay high dividend and interest. One should go with debt mutual fund in place of FDs when interest rate in the latter goes down.

3 Money market funds

These funds are open-ended mutual fund schemes that invest your money in short term debt securities. These funds are very safe in comparison to other mutual funds for retirement purposes. Money market funds provide a very simple procedure for withdrawing fund from your bank account.

4. Hybrid debt oriented fund or Balanced funds:
These funds invest your money in different assets like equity, debt market, money market and gold schemes. The funds come in three forms- capital protection funds, asset allocation funds and monthly income plans. These funds are good for those people who are looking for safety and appreciation of the invested capital.

5. Retirement income funds :
These funds invest in stocks, cash and bonds for retired persons and provide them stable income during the retirement. There are three types of retirement income funds available in the market:-

6. Target date retirement funds :
Target date retirement funds automatically reset the asset of stocks, bonds in their portfolio as per the time selected by the investor. As an investor, you need to choose single fund to reach their retirement goal instead of choosing a number of investments. The fund manager keeps in line with the investor goal by rebalancing the fund assets each year for their retirement. These funds are quite risky.

7. Income replacement fund :
Income replacement fund returns your money, income and capital gains earlier than it liquidates in a selected year.

8. Managed payout funds :
Managed pay out funds provide you fixed monthly income through different strategies and payout may possibly fluctuate from year to year, and they are not expensive at all. These funds comes in different options to manage your payout funds.

(A) Variable payouts :With variable payouts, the amount of income may vary from month to month. Also, the return is not guaranteed.
(B) Inheritance : For immediate annuity, inheritance managed payout fund is a good option as you can transfer your payout amount to your beneficiary account any time.
(C) Flexibility : This option allows you sell your mutual fund units whenever you require money on an urgent basis.