How to create a retirement plan for senior citizens with debt funds?

Retirement marks a crucial milestone in one’s life, particularly for seniors who have dedicated their lives to work and achieved so much along the way. It is a time to take a break, relax, and enjoy the fruits of their hard work. But with the rising cost of living, healthcare expenses, and longer life expectancy, senior citizens need to strategize their finances more carefully to stay independent during retirement. One useful strategy that can help with retirement planning is debt funds.

Debt funds are mutual funds that invest in fixed income securities like government and corporate bonds, debentures, and other money market instruments. These funds offer slightly better returns than banking options like fixed and recurring deposits and also come with lower market risks, diversification, and more benefits. 

Let’s discuss in detail how senior citizens can create a comprehensive retirement plan through debt fund investments and secure their golden years.

  • Invest in dynamic bond funds

Dynamic bond funds are debt funds that adjust their portfolio with short-term and long-term debt instruments dynamically. These instruments include government securities, corporate bonds, and money market instruments. The fund manager actively manages the portfolio and takes advantage of interest rate movements. 

As a senior citizen, investing in dynamic bond funds can provide you with regular income while also protecting your investments from interest rate movements.

  • Opt for monthly income plans

Monthly Income Plans (MIPs) are hybrid schemes but are debt-oriented mutual funds that aim to provide regular income to investors. These funds invest a majority of their assets in fixed-income instruments with a small portion in equity to generate higher returns. 

MIPs provide periodic dividend pay-outs on a monthly, quarterly, or half-yearly basis, making them an ideal option for retirees seeking regular income. Senior citizens should look for MIPs with a low exposure to equity to minimise the risk of losses.

  • Consider investing in debt-oriented hybrid funds

Debt-oriented hybrid funds invest a higher proportion of their portfolio in debt instruments and a smaller proportion in equities. The debt portion offers a steady stream of income to seniors and the equity portion helps in capital appreciation over time. 

While selecting a debt-oriented hybrid fund, look into the fund’s performance history, expense ratio, and asset allocation to build a sustainable retirement corpus.

  • Start a systematic investment plan (SIP) in debt funds 

An SIP is a simple yet efficient way to invest in mutual funds online. This strategy eliminates the need to time the market and instead encourages seniors to set up automatic payments, which in turn creates a disciplined savings plan.   

Diversify across different debt funds, such as short-term, medium-duration, and long-duration funds, to balance risk and returns. Now decide the amount to contribute each month and stay committed to this amount, even during market downturns. This helps to leverage rupee cost averaging, which will average out the total investment cost and deliver better returns over time.

It is advisable to monitor the fund’s performance and re-balance investments to ensure proper asset allocation and risk management. 

The bottom line

With lower volatility, consistent returns, and stability as its key features, debt funds offer a low-risk option for senior citizens to create a retirement plan. Before investing, consider the fund’s track record, investment strategy, expense ratio and diversify with different debt funds types to minimise risks and maximise returns. 

Consulting with a financial advisor who has experience in creating retirement plans can also be invaluable. A professional advisor can offer detailed insights and personalised advice that considers individual needs and goals, helping senior citizens create a retirement plan that fits their specific requirements.