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Investing In Equity: Is It A Boon Or Bane For Senior Citizens?

Equities are one of the very few investment instruments that have the potential to beat inflation by a big margin over the long term. But should senior citizens include it in their portfolio or avoid it because of its risky nature? We explore

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Amit Sethi
August 3, 2023
Investing In Equity:

Investing In Equity:

Equity investments can prove to be a wealth maximiser for senior citizens, who usually depend on low-return and low-risk investment products, such as fixed deposits and small saving schemes.

But, at the same time it is also true that equity instruments carry high risks, while senior citizens have a lower risk appetite.

So, should senior citizens invest in equity instruments? Let’s find the answer by understanding the benefits and limitations of investing in equity instruments.

Attractive Tax Benefit: Equity-based instruments, such as mutual funds and direct investment shares are highly tax-efficient.

The long-term capital gains (LTCG) tax of up to Rs 1 lakh in a financial year on equity investments like shares and mutual funds is exempt from income tax, whereas gains above Rs 1 lakh is taxed at 10 per cent. Short-term capital gain (STCG) is taxed at a rate of 15 per cent.

Low-risk investments, such as debt funds and FDs are taxed at a slab rate applicable to senior citizens, so equity can prove to be highly tax-efficient for them.

Low-Risk Options In Equity Investment: Risks cannot be eliminated, but it can be lowered. By investing in an arbitrage fund, senior citizens can get a decent return, which is similar to debt funds and FDs, but at the same time, they will also get the tax benefit, which is available to equity investment.

Arbitrage funds play safe as they earn a return on the difference between the cash market and the future market. A return of 7-8 per cent per annum in arbitrage funds can be greater than a similar return on FDs and debt funds after one considers the taxes.

Beat Inflation: After retirement, you may not want your retirement corpus to erode quickly due to the impact of inflation. So, a little exposure to equity assets for the long-term can provide a much-needed boost to the overall return of your investment portfolio.

CHALLENGES WHEN YOU PUT MONEY IN EQUITIES

Sometimes, the equity market can be extremely volatile, and senior citizens may not be able to liquidate their investment because of losses.

Direct investment in equities requires an expert level of knowledge and patience.

Also, equity investment may not be suitable for short-term purposes. If the investment goes wrong, the investor risks losing their capital.

FINAL WORD

Senior citizens should use equities as a medicine pill, i.e., they should invest in equity as per their requirement and for the specific tenure as prescribed by the investment advisor.

 

The author is an Independent Financial Journalist

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