Why liquidity of investments is important for retirees
Posted by: Arti Bhargava on Apr 16, 2018, 06.30 AM IST
Mahendra Kapoor is a retired government employee who earns a pension as well as interest from his investments. Though his pension is adequate, he is worried about financial emergencies that may crop up.
Last month, his wife underwent a minor surgery. Though the medical expenses were covered by the CGHS scheme, Kapoor had to take a loan at a high interest rate for other expenses. He has investments in Post Office schemes, including the Senior Citizen’s Savings Scheme, NSCs and KVPs. Kapoor plans to close some of these so that he has liquid cash in his bank acocunt. What should he do?
Retired people like Kapoor should have a portfolio which gives him both income and liquidity. His income needs are adequately taken care of by his pension, but his ability to tackle financial emergencies at a short notice is compromised because the investments are tied up in long-term products. Since he is not earning an income, it is important that his existing corpus is invested in a way that he has the flexibility to redeem at short notice. Kapoor must reallocate a portion of his portfolio in investments with shorter tenures and which can be withdrawn without penalty.
Breaking his investments in the Senior Citizens Saving Scheme will result in a penalty, so Kapoor should continue with that. Instead, when other Post Office investments come up for renewal, he should put them into a fixed deposit with his bank. Banks no longer charge a penalty for breaking a fixed deposit prematurely. So, bank deposits may be easier and faster to withdraw than a Post Office scheme. What’s more, this year’s Budget has given senior citizens an additional exemption of Rs 50,000 for interest income.
Kapoor can also consider investments like short-term debt funds and liquid schemes for parking his emergency funds. They will offer him better returns than a savings bank account.