Secured Investment and Maximum Returns
While capital safety is an important consideration when you are retired, as discussed earlier, with increasing life spans and high inflation, you cannot totally ignore equities. Equity as an asset class, while riskier than fixed income, has beaten in inflation in the long term. Debt oriented hybrid mutual funds are excellent investment options for investors who want to earn higher returns on their investment with limited risks over a long investment horizon. Mutual Fund Monthly Income Plans, a type of debt oriented hybrid mutual funds are good investment options for senior citizens who want to get regular income along with capital appreciation.
These plans invest 20 – 30% of their portfolio in equities to give a kicker to returns and at the same time earn stable income by investing 70 – 80% of their portfolio in fixed income securities. Mutual fund MIPs offer better liquidity than some other investment options discussed above. Mutual funds charge 1% exit load for redemption of units within one year of allotment. After one year there is no exit load. Returns of mutual fund MIPs are more tax efficient compared to other investment options. Even though MIPs are treated as debt funds from a tax perspective, the dividend distribution tax paid by the mutual fund is lower than the tax rate of the investor in the highest tax bracket. Savvy investors can save taxes further by opting for systematic withdrawal plan (SWP) instead of dividends (. SWP withdrawals are assessed for capital gains tax.
Long term capital gains (more than three years in case of non equity funds) are taxed at 20% with indexation. Top performing MIPs have given more than 10% compounded annual returns over a 10 year investment period. You can look up top performing debt oriented hybrid funds by going to our research section, Top Performing Mutual Funds – Hybrid Debt Oriented Funds. The downturn in global and domestic equity markets notwithstanding, the outlook on the Indian economy is positive relative to other emerging markets.
In fact, most experts believe that we are in a long term structural growth market and that the current downturn is a good opportunity to increase allocations to equity. Having said that, investors should also understand mutual funds are subject to market risks and that past performance is not a guarantee of future performance. Therefore they should ensure that mutual fund investments are consistent with their risk profiles.