To grow their capital, retirees should assume some equity risk, suggests Dhirendra Kumar
For retirees with a major portion in bank deposits, please advise where to invest some portion as interest on FDs is extremely low now.
Yes, this is going to be one of the biggest crises India faces. With a large part of Indians still having 20-30 years to work, save, accumulate, and make investments, India is looked at as a young country but for those who are retiring now can have a few significant problems. One is that a majority of retirees do not have any experience of making market-linked investments. The previous generation or anybody who is retiring even now has primarily been used to fixed deposits only and everything else was far riskier. Further, it might be risky even now if you do it without any understanding.
Also, returns on fixed income have come down so dramatically and they will come down even further and thus, investing in them won't be enough from here on.
Now you have two ways out, one is to get into higher yielding deposits. For this, I would say that the first option should be to exhaust your Senior Citizen Savings Scheme (SCSS) entitlement of Rs 15 lakh. Currently, this is one of the higher yielding options giving 7.4 per cent.
Coming to the next few options, you can consider the Post Office Monthly Income Scheme (POMIS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY) where you can invest Rs 9 lakh (jointly) and Rs 15 lakh, respectively. So, these are the safest and bankable income- generating options and can well be your first stop.
Now, beyond that, you need to really allocate a certain part into equity to enhance your capital. The dual challenge in retirement is to generate income as well as ensure growth of capital to support higher income from your investments. Thus, you need to assume equity risk. But how you would you go about investing requires careful hand holding, some degree of acclimatising yourself to market volatility and careful planning. So, invest in equity but do so in a calibrated way.