Senior citizens investment: How retirees should invest in MFs - expert shares three-bucket strategy

As Indians live longer and retire with larger but finite savings, the role of mutual funds in post-retirement planning is coming into sharper focus. While traditional instruments such as fixed deposits, Senior Citizen Savings Scheme (SCSS) and post office products continue to offer stability, market-linked investments are increasingly being seen as a way to protect purchasing power and manage longevity risk.

Dhirendra Kumar, Founder and CEO of Value Research, says there is no one-size-fits-all investment strategy for retirees. “There is no straight-jacket answer for all retirees. Every retiree is unique, and they need to be careful in how they approach investments because their risk tolerance and earning capacity change significantly after retirement,” he said in a recent podcast.

According to Kumar, retirees broadly fall into three categories, based on their income dependence on investments. The first group comprises retirees who are entirely dependent on their savings for regular income. “If someone has ₹30 lakh and all the income generated from it will be fully consumed, you can’t take chances with that money,” he said. For such investors, guaranteed-return products like SCSS and post office monthly income schemes should form the core of the portfolio.

However, Kumar warned that relying only on fixed income may not be sufficient in the long run. “If the income is just good enough today, it may not be good enough five years from now,” he said, adding that retirees must either save part of the income, gradually allocate to equity, or reduce expenses to stay ahead of inflation.

The second category includes retirees who receive pensions or have other income sources but seek supplementary income. For them, Kumar suggests a conservative investment approach with limited equity exposure. “A small part of the money—5%, 10% or even 20%—can be invested in market-linked instruments, depending entirely on the scale of investments and income needs,” he said.

The third category comprises financially secure retirees who do not need income from their investments. Even for them, Kumar advises moderation. “Ideally, there is no problem with a 100% equity portfolio. But as you get older, you don’t want the headache of worrying about markets falling,” he said.

Value Research’s long-term analysis shows that a balanced approach often works best. “We studied 30 years of data across multiple market cycles and found that a 50% equity and 50% fixed-income allocation turned out to be the sweetest spot,” Kumar said. During the 2008 crisis, a 100% equity portfolio fell nearly 65%, while a 50:50 portfolio declined about 30%—and only briefly—making it far more manageable for retirees.

When it comes to mutual fund choices, Kumar recommends hybrid funds for retirees seeking simplicity. “Balanced hybrid funds, with 40–60% equity exposure, let you participate in market rallies without losing sleep when markets correct,” he said.

For retirees needing periodic cash flow, Kumar strongly prefers systematic withdrawal plans (SWPs) over dividends. “Don’t consider dividends as a sign of performance. Dividends are paid at the fund house’s discretion and reduce your principal,” he said. SWPs, by contrast, offer predictable cash flow and better tax efficiency. “Even in the highest tax bracket, SWPs are usually superior because capital gains are taxed at lower rates,” Kumar added.

The core message, he says, is clarity. “Retirees need to know which bucket they fall into and then build a hierarchy of risk. Once that is clear, investing and withdrawing becomes far more disciplined and stress-free.”

Top recommendations (compiled by Business Today)

1. HDFC Senior Citizens Savings Fund
The HDFC Senior Citizens Savings Fund facilitates the government-backed Senior Citizens' Savings Scheme (SCSS), ideal for residents aged 60+ (or 55+ for VRS retirees, 50+ for defense). It offers ~8.2% p.a. interest (Q1 2025 rate, quarterly reviewed), fixed quarterly payouts, ₹1,000–₹30 lakh deposits, and 5-year tenure (extendable 3 years). Principal qualifies for Section 80C deduction up to ₹1.5 lakh; interest is taxable. HDFC Bank branches handle applications, linking payouts to savings accounts. Unlike HDFC's flexible Senior Care FDs with variable rates, SCSS provides secure, predictable income with a strict ₹30 lakh cap.

2. ICICI Prudential Bond Fund

ICICI Prudential Bond Fund follows a disciplined medium- to long-duration strategy, focusing on sovereign and AAA-rated corporate bonds to minimise credit risk while benefiting from interest-rate movements. The fund has delivered steady returns across cycles, including about 6.6% in 2025, outperforming its benchmark with relatively low volatility. Active duration management and a high-quality portfolio have helped it maintain consistent category rankings. The fund is suited for investors looking for predictable income and stability over a medium-term horizon, rather than high-growth return.

Parameter    Details
Fund Name    ICICI Prudential Bond Fund
Category    Debt – Medium to Long Duration
Launch Date    August 2008
Investment Strategy    Invests in high-quality government securities and AAA-rated corporate bonds; portfolio duration maintained between 4–7 years
Average Credit Quality    AAA
Average Maturity    ~16 years
2025 Return    ~6.6%
10-Year Performance    Consistent upper-quartile ranking within category
Risk Profile    Low-to-moderate interest rate risk; limited credit risk
Suitable For    Investors seeking stable income and moderate capital appreciation over medium term

3. Balanced hybrid funds

Balanced hybrid funds aim to deliver stable, risk-adjusted returns by investing across equities and debt, typically maintaining near-equal allocation between the two. This structure allows them to capture equity upside during market rallies while cushioning downside risk through fixed-income exposure. Over the past year, returns in this category have been supported by steady equity markets and moderating interest-rate volatility, helping funds deliver mid-single to high-single-digit gains.

Performance dispersion across timeframes highlights the importance of asset allocation and rebalancing discipline. Funds with a higher equity bias have led short-term returns, while those with consistent debt exposure and longer holding periods have performed better over three years. These schemes are well suited for investors seeking smoother returns than pure equity funds, with lower volatility and reasonable growth over medium-term horizons. They work best for conservative to moderate investors looking for capital appreciation along with income stability.

Top balanced hybrid funds by returns

Top 5 funds – 6-month returns

Rank    Fund    6M Return (%)
1    WhiteOak Capital Balanced Hybrid Fund – Direct    3.39
2    UTI Retirement Fund – Direct    2.04
3    360 ONE Balanced Hybrid Fund – Direct    1.14
4    Franklin India Retirement Fund – Direct    1.02
5    UTI Children’s Hybrid Fund – Direct    0.09

Top 5 funds – 1-year returns

Rank    Fund    1Y Return (%)
1    WhiteOak Capital Balanced Hybrid Fund – Direct    8.06
2    UTI Retirement Fund – Direct    6.59
3    Franklin India Retirement Fund – Direct    5.08
4    UTI Children’s Hybrid Fund – Direct    4.98
5    360 ONE Balanced Hybrid Fund – Direct    4.95

Top funds – 3-year returns

Rank    Fund    3Y Return (%)
1    UTI Retirement Fund – Direct    13.10
2    Franklin India Retirement Fund – Direct    11.11
3    UTI Children’s Hybrid Fund – Direct    9.84