Bank FD rates will fall: What should the retired people do?

On 2nd August, 2017, RBI has again reduced the repo rate. Now the banks will cut the rate of interest of FDs. Currently the the interest rate of FDs for 1 year is 6.75-6.8%. The senior citizens get an additional benefit of 0.5%. So, for them, the rate of interest is 7.25% per annum. But this rate will again come down.

The investment experts suggest the retired people the park their money in debt funds. But there are different types of debt funds. So, how to chose debt funds? I am attempting to give a simple solution:-

(i) To park your money for less than 3 months: Chose a Liquid Fund
(ii) To park your money for 3-6 months: Chose Ultra Short -term Bond Fund
(iii) To park money required after 6-12 months: Invest in Short-term Bond Fund
(iv) For investment for a period of 1-3 years: Chose Intermediate Bond Fund
(v) To invest money for more than 3 years: Invest in Corporate Bond Fund or Dynamic Bond Fund

The risk profile of debt mutual funds is much less than equity funds. These debt funds are more tax-efficient than Bank FDs.

For more details about debt mutual funds, please read the article: Debt Mutual Funds-Types and Investment Philosophies