You must have read a lot of articles on what are the best investment options for senior citizens? Which instruments should senior citizens choose for safety of capital and better returns? Despite a lot of good options, senior citizens still invest in products which are not good for their financial health like investing in co-operative banks, insurance policies, stocks, NCDs etc.
Rule no 1 for every investor whether the person is a senior citizen or a young investor is to choose between good and bad investment options. If you are able to bifurcate bad investment options from good one, half of the problems about investments can be solved.
Co-operative Banks
Let me take the example of recent issues with PMC bank. I read in the newspaper that a senior citizen invested his entire retirement savings in FDs of PMC bank, the amount was around 30 Lakhs. When RBI put a cap on withdrawal of 1000/-, it was difficult for this person to survive as he was having no other savings.
Now, what can be reason for the investor to invest his/her entire savings in a Co-operative bank? May be 2% higher interest rate on FDs compared to a safe and strong bank. How much it would have made a difference in that retiree`s life?
If you invest 30 Lakhs in FDs at interest rate of 7%, the monthly interest you get is 17,500. If you invest the same amount in a Co-operative bank, assuming interest rate of 9%, you will get 22,500 per month. Definitely a gain of 5,000 per month. But for this additional 5,000, are you ready to take risk on your entire capital of 30 Lakhs. If I ask this any person, the logical answer would be no but the logic do not work in the real world. People still invest their life time savings to get that 2% extra returns.
I am not saying Co-operative banks are not safe, I am just trying to say that these banks are riskier than the banks like SBI, ICICI and HDFC.
Return of capital is more important than return on capital. It is always to be safe than sorry.
Also Read: Retirement at 45
NCDs
The same goes with Non Convertible Debentures (NCDs). When I ask people what is a debenture, they have no clue about it. What all they know is that this NCD is giving 2% extra returns than FDs. But have you ever thought why the company is ready to give 2% extra on your capital? It is because it is much riskier than your FDs. The company is offering higher return because they are unable to raise capital for them at lower rate because of the high risk attached. If the company fails tomorrow, you cannot go anywhere. The only option is to raise complaint and follow up with them and wait indefinitely. You know the recent example of DHFL, ask people if they have received their capital back from DHFL NCDs or it is being delayed every time.
Just stay away from it.
Also Read: Asset allocation by age or goal
Life Insurance Policies
IRDAI should ideally ban all the Life Insurance policies being sold to Senior Citizens except annuity products. First, there is no need of life insurance cover for Senior Citizens. Second, Senior Citizens get better interest rates in FD while insurance policies give returns only in the range of 4%-6%. Senior Citizens are the easiest targets for insurance companies. Agents sell them policies by showing better returns. In most of the insurance policies sold to senior citizens, they are the proposer and not the life assured and they even do not know about it. You know what it means, if the senior citizen dies, the life insured has to pay the future premium for the policy.
Never ever think of buying a insurance policy after age 60 (except annuity, that too after understanding the terms and conditions)
Stock Trading
This is another area where senior citizens fell prey to the greedy stock brokers. I have seen lot of retired people who never invested even in mutual funds throughout their life suddenly wants to do intraday trading in stock market. Reason can be numerous- they do not have any option to pass their time, so they think that at least half of day would pass easily. Some even want to earn from it as they do not have enough retirement corpus and stock market is their only hope.
Trust me, you can do these experiments at young age, not after 60 years. It is going to affect your health and wealth badly.
Stay away from it.
Conclusion
When you are young, it is easy to amend some of the investment principles as you still have time to earn and learn. But if you start doing investment mistakes at age 60, you can definitely learn but chances of earning are very less. The more mistakes you make, higher are the chances that you would be dependent on your children or someone else, even for your daily needs. So, for senior citizens, it becomes even more important to take their investment decision wisely.
Though there is no dearth of bad investment products in the market, be smart and choose a good and safe investment product. Till then
Happy Investing!
Good Advice. Thanks
Read the article. It’s giving clear idea that what we should not do regarding investment when we are nearing to retirement. Thanks for posting the article.
Very preliminary ! You are pointing more to areas of loss making and poor reliability , which will never suit the seniors
Very practical advice but as usual many are going to ignore to their peril.
Very good, simple and easy to understand. Could include options of investmentscfor senior citizens.
Great article Sir. Very relevant to the current situation.
Good comment
A very good post , explaining lucidly about the possible financial perils that can hit the senior citizens ,causing irrevocable damage….
Thanks Nandini.
Very Nice and important tips to Senior Citizens. Financial Independence is utmost important in this age and to maintain that, safe investing is necessary. If I can quote you to summaries in one sentence “Return of Capital is more important than Return on Capital” – absolutely true Sir.