How senior citizens can cope with inflation

Recently, a session participant asked me how he could get better returns on his parents’ funds, given low interest rates and rising inflation. He was evaluating many options like bonds, P2P lending and equities. In search of higher returns, investors are forgetting about the most significant aspect of investing: risk.

There is a variety of bonds available that give high returns in the range of 9-12% p.a. Many senior citizens get lured to these bonds since they are from known names or state government companies. Just because a company is known, it doesn’t qualify as a good investment. Remember IL&FS, DHFL etc! Individuals do not have any idea about the finances of these companies and do not have the ability to gauge their financial future. Bonds from state government-promoted companies are being looked upon as safe because are owned by state governments. However, there have been instances in the past of delayed payments and these are not always considered good credit.

P2P and invoice discounting are giving 12-15% p.a. returns but are not recommended due to the risks involved. P2P involves lending to borrowers with low credit scores and invoice discounting comes with the issue of the investor taking responsibility for the invoice, which is not something anybody let alone senior citizens should take. Further, the platforms offering these investments will not help you in recoveries. It is next to impossible for individuals to chase these borrowers.

While evaluating an investment, always compare the returns of any instrument with bank deposits of the same period. Any institution giving much more than the SBI deposit rate means it carries high risk.

Rather than chasing the above investments, investors can better utilise their existing assets.

Gold has been held in the form of jewellery for the longest time in bank lockers. As audacious as it sounds, it is worth considering selling part of this holding, to meet financial needs. Individuals will be surprised to know how much they have once they list their gold holdings. Gold is passed on through the generations, but the current generation is not interested in gold ornaments.

Sort out the family heirlooms and jewellery of emotional value and look at how to use the balance. Make a better life for yourself over having gold assets in a locker, which you won’t anyway use, even in emergencies.

Next, consider a reverse mortgage, wherein your house gets mortgaged to the bank and you receive regular life payments. On the passing of both partners, the house is sold and the balance, after recovering the loan principal and interest, is given to the heirs.

Most public sector banks offer this scheme, with loans to value being 60-80% and a cap of Rs 1 crore. The best part is that the monthly instalments received from a reverse mortgage are tax-free.

Most senior citizens would be hesitant to use these options but it is important to ensure you live comfortably in the golden years and not have to depend on children financially. Put your passive assets to work.