How to invest Rs 12 lakh for a senior citizen?

One of our readers, Shashank Kumar, recently asked us: "I have Rs 12 lakh to invest for my 67-year-old mother for up to five years. How should I do it?"

At Value Research, we always suggest that when investing for a senior citizen, you should always keep three things in mind:

• Safety. In other words, preserving the amount you invest.
  
• Regular income. While this may not be a priority for every senior citizen, many want to receive stable money at regular intervals.
  
• Protection from inflation

The ideal investment portfolio

SCSS; for those who need guaranteed regular income
Let's look at where to invest for safety and regular income.

If the goal is guaranteed income with full capital safety, the Senior Citizens' Savings Scheme (SCSS) is a great choice. It offers a government-backed interest of 8.2 per cent per annum, paid quarterly.

By investing Rs 12 lakh, your mother would receive approximately Rs 24,600 every quarter (every three months) with complete capital protection.

However, SCSS returns are fixed and may not keep pace with inflation if the investment extends beyond five years.

Already used SCSS or need flexibility?
If your mother has already exhausted the Rs 30 lakh SCSS limit or doesn't need guaranteed returns, short-duration debt funds are a suitable alternative.

These funds are reasonably safe, carry minimal risk and offer better liquidity than SCSS.

Historically, they have delivered returns of around six to seven per cent annually. They can also generate income through a systematic withdrawal plan (SWP), though returns are not guaranteed and can fluctuate slightly.

Open to some risk?
If your mother is open to mild risk and a bit more flexibility, adding equity can help protect the portfolio against inflation. Fixed-income returns often fall short of rising living costs, while equity offers growth potential to preserve purchasing power.

A balanced approach would involve allocating at least one-third to equities , such as large-cap or index funds, for inflation protection, while keeping the remaining investment in SCSS or short-duration debt funds for safety and predictable returns.

This strategy ensures a balance between security and long-term growth.

The alternative portfolio (A simplified version)

Equity savings funds
If managing multiple investments feels overwhelming, equity savings funds provide a balanced and a tax-efficient solution. These funds diversify across equity, arbitrage strategies and debt, offering moderate growth with lower volatility compared to pure equity investments.

In the long run, one can generally expect them to deliver an annualised return of 8 per cent. They can also generate income via SWP.

The third option for more aggressive investors

Aggressive hybrid funds
If your mother can handle higher risk and a slightly longer investment horizon, aggressive hybrid funds could be an option. These funds invest around 70 per cent in equities, offering higher return potential but also greater short-term fluctuations.

Tip: Avoid lump-sum investments in equity. In your case, Shashank, it is best to spread the Rs 12 lakh over a period of at least 12 to 18 months.

What you should remember

Adding some equity exposure is essential to keep pace with inflation over the long term, say if the money is intended to be preserved for a horizon of more than five years. This holds true for senior citizens, too.

Also read: How to invest Rs 30 lakh the right way?

This article was originally published on January 07, 2025.