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Should Retired Individuals Opt for Balanced Mutual Funds?

When you retire, there are few incomes sources which you are left with. Pension is the only source of income for most retirees, but the problem is that their expenses tend to increase as they grow older. That’s because with increasing age comes health issues, and if you do not have a medical insurance bearing such unexpected costs might become difficult. Hence it is necessary that even after retirement you invest in specific schemes which can help you sustain even after retirement and assist you in building your existing retirement corpus.

Mutual funds can be an excellent way for someone to make some extra cash. But mutual funds are subject to market volatility, and there are chances of you losing out on your initial investment as well. However, this doesn’t necessarily mean that you will lose money. If you know your financial goal and invest according to your risk tolerance, you do stand an opportunity of making some capital gains.

As a retiree we understand that you are living on a fixed budget and would not want to risk your money. But if still have some risk tolerance and seek capital gains through mutual fund investments, you can consider investing in balanced funds.

What are balanced funds?

According to SEBI, a balanced fund must invest 40 per cent to 60 per cent of the total assets in equity and equity related instruments as well as in debt instruments. This makes a balanced fund an open ended scheme that invests in equity and debt related instruments.

Are balanced funds suitable for retirees?

Like we said earlier, most retirees are living on a fixed income and do not want any financial burden while living their sunset years. Balanced funds invest in both equity and debt and hence the risk profile that these funds carry as compared to equity mutual funds is comparatively low. Thus, as a retired individual, you do not have to worry about losing your money because these funds have the tendency of reducing the risk by investing in diversified folio across asset classes.

Balanced funds are professionally managed funds. This means that the fund manager is actively involved and has the responsibility of buying / selling securities in order to meet the scheme’s investment objective. Hence, as a retired investor, you do not have to worry about losing your money because the fund manager usually makes sure that the investment strategy that he follows renders in meeting the scheme’s investment objective.

Because balanced funds invest in a mix of equity and debt securities, they are considered to hold the potential to beat market inflation. Hence, a lot of retirees prefer investing in balanced funds because not only do they have the tendency to outpace inflation, but also aid in long term preservation of the retirement corpus.

Balanced funds are way less volatile as compared to stocks. When you own shares of a company, if the company goes bankrupt, you will lose all your shares. But when you invest in balanced funds, you do not own any shares but are entitled to a particular asset of the company. Hence balanced funds offer more stability as compared to stocks and are also less risker.

Balanced funds can be an ideal choice of investment for retirees because of all the aforementioned reasons. But remember that they are still equity related investments and carry some risk with it. So if you are a risk averse investor, you should reconsider investing in balanced funds. Remember that the key here is to grow your already existing retirement fund and not gambling with it. So keep a defined financial goal and invest regularly.

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