Retirement is the phase in one’s life when he/she decides to leave the workforce and live a worry-free life while reaping the benefits of hard work. The inflow of money would cease during the retirement phase, but expenses would continue. Because you no longer have a regular source of income and have a finite amount of resources, your ability to compensate for increasing bills will be constrained.

Considering that you had made wise investing decisions during your working years, you may have accumulated a sizable retirement fund for your golden years. Now comes the matter of how to manage your investment portfolio after your retirement. This is critical because your regular source of income will cease during your retirement years, and you will rely on your investment portfolio to manage the expenses and fulfil contingencies.

Looking at the current scenario, we could see inflation spiralling up, which makes Retirees stand in a tough spot. High inflation means your savings and fixed income investments lose their purchasing power as time passes and the cost of goods and services goes up. Inflation can affect your standard of living and is especially problematic for retirees.

After years of low inflation, many retirees are concerned about rising prices. Inflation can be defined as the increase in prices of everyday commodities and the consequent devaluing of the currency. The high inflation in India has excessively affected the cost of basic amenities like edible oil, crude oil, and vegetables.

The alarmingly high inflation rates have surpassed the Reserve Bank of India’s (RBI) estimates from September 2021. In January 2022, the inflation rate hit an all-time high of 6.01%. In March 2022, Indian retail inflation jumped to 6.95%, exceeding the RBI’s upper limit of 6% for the financial year 2022-23.

In a country where retirees invest primarily in traditional rupee-driven investments like fixed deposits (FD), Public Provident Funds (PPF), and gold, rising inflation is an acute problem that requires a thought-out investment strategy with the intent of deviation. Returns generated by fixed-income alone may not be sufficient to provide inflation-adjusted income throughout the retirement years.

Given that, in the current low-interest-rate environment, earning inflation-beating returns from fixed deposits will be a daunting task. Thus, you must consider investing in assets that can keep pace with inflation or even surpass it in growth.

Evaluate your existing investments to make sure inflation won’t eat away their value. One way to keep inflation from affecting your ability to maintain your lifestyle in retirement and accelerate your portfolio returns is to invest in equity mutual funds. If you have parked some money in fixed deposits for the long term, moving it to a worthy equity mutual fund would be a good idea.

However, there is usually a cost associated with any investment that has the potential for significant inflation-beating returns. Investments, such as equities carry higher risks of losing value due to their volatile nature. Thus, retirees should strike a balance between risky and conservative investments. Taking on too much risk could put investors in danger of losing too much of their portfolio during downturns in the market. Market volatility is risky for retirees, as they have a shorter time horizon for their investments to recover if affected by volatility.

Retirees must allocate a small portion of at least 30 to 40% of the portfolio to equities, and that is how you will earn better inflation-adjusted returns or income over the long term. Keep in mind investment in equities should be with a long-term perspective where you should invest an amount of money that will not be required in the next 3-4 years. Equity mutual funds also provide you with an SWP option to maintain a regular flow of income.

[Read: How Retirees Can Use the SWP Option to Manage their Cashflow Needs ]

Equity mutual funds are one of the best ways to beat inflation and generate significant returns over the long term, as they are market-linked and tend to return more than the rate of inflation. There are various categories under mutual funds that you may consider after assessing your risk profile and investment horizon. The priority is to maintain a regular flow of income for retirees. While at the same time generating inflation-beating returns on the corpus they have accumulated.

Mutual funds, which are easier to withdraw and offer superior post-tax returns, provide much-needed liquidity to retirees. You might want to diversify your mutual fund investments by investing in a variety of mutual funds.

Types of mutual funds Retirees may consider for accelerating their portfolio returns:

1. Large-cap mutual funds, which invest at least 80% of their assets in the top 100 businesses by market capitalization and strive to combine the dependability of large caps with few conviction midcap stocks up to a maximum of 20%, are another alternative for retirees. Large-cap stocks are expected to be less risky, whereas mid and small-cap stocks may have a higher potential to grow with higher risk.

Hybrid mutual funds are another option for retirees to explore. Depending on your risk tolerance, you can invest in both equity and debt through a single fund. You can consider investing in Aggressive Hybrid Funds, Conservative Hybrid Funds, Balanced Advantage Funds, Equity Savings Funds, etc.,

2. Equity Savings Fund is a hybrid mutual fund that aims to create consistent returns from investments in equity, debt, and arbitrage opportunities that may be of interest to retirees. These funds must invest at least 65% of their assets in equity and equity-related securities (including arbitrage) and at least 10% of their assets in debt.

3. Aggressive Hybrid Funds, also known as Equity-oriented Hybrid Funds, are open-ended hybrid schemes. In this category of funds, equity instruments account for 65 to 80% of total assets, while debt instruments account for 20 to 35% of the portfolio. A combination of these asset classes offers a high level of diversification, thus, lowering the risk compared to a pure equity fund.

4. Balanced Advantage Funds are a form of hybrid fund that invests in both equities and bonds but has no asset allocation requirements. There is no predetermined limit on how much of a given asset class you can own. These funds allow the fund management to adjust the asset allocation depending on the prevailing market conditions.

5. Multi-Asset Allocation Funds are hybrid funds that must invest a minimum of 10% in at least 3 asset classes. These funds typically have a combination of equity, debt, and one more asset class like gold, real estate, etc. Different asset classes have lower correlation and behave differently in various phases of the economy.

Apart from this, you may also consider Retirement Savings funds that are an excellent option to plan one’s retirement. These funds have a lock-in period of five years, which is less than a lock-in period of 15 years in the government’s National Pension Scheme. These mutual fund schemes offer various plans such as aggressive, moderate, and conservative. For example, under aggressive asset allocation, 85-100% of assets are allocated to equity-oriented schemes, whereas under conservative asset allocation, 70-100% percent of assets are allocated to debt-oriented schemes, which are less risky.

The impact of inflation on the economy is never consistent, and inflation is unlikely to come down anytime soon, making traditional savings and investments unsustainable in the long run. To ensure that you have the financial potential to pay for necessities as well as the ever-growing demands and needs of your family and children post-retirement, you need to invest in assets that keep up with the inflation and beat it.

Many of you may aim to have a blissful retired life. Thus, you must consider investing sensibly and diversifying your investments across asset classes and investment avenues to accelerate your portfolio returns.

This article first appeared on PersonalFN here


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