Beloved Readers, In this blog, we shall talk about the investment options available for senior citizens. You have worked your life hard, and now you want to enjoy your remaining life worry-free. But you have particular requirements.
Generally, senior citizens are seeking security on their capital and optimal returns on their investment. So, the best investment should be the one that gives capital protection and high returns. Therefore, the optimal mix of risk is essential; having a diversified portfolio is a must for the senior citizens.
Senior citizens want to spend a luxurious life post-retirement, but the investment options available are not lucrative in terms of returns, considering the risk factor. So, there has to be a mix of low and medium risk investment so they can safeguard the capital and enjoy the post-retirement life.
Top 5 Investment Options for Senior Citizens
Here are the few options available for the senior citizens to invest:
Senior citizen Fixed Deposit
FD is the first choice of Indians when it comes to investing; it gives fixed returns on the capital with 100% capital protection. It is free from market variables; therefore, you can count on this that FD can help you grow massive growth on your investment. In terms of liquidity, it is easy to close the FD and get the amount back with a little charge. FD can be done of any amount and any tenor from any bank.
The interest rate varies from bank to bank and from time to time. RBI and banks decide on the interest rate that should be prevailing in the market. But it is here senior citizens get their benefit; they get a higher interest rate compared to the rate offered for the ordinary citizens. Every bank offers senior citizens a better interest rate so that they can choose from any bank of their choice.
Now, to the popular belief that when you invest in FD, you lock your money and get all is you get at maturity. But that’s not true you can opt for Cumulative payout which means that you can get periodic(monthly, quarterly, half-yearly) return. It is Non-Cumulative payout return is where you get a payout at maturity. Senior citizens can opt for a cumulative payout as they can meet there day to day expenses and investment in various other investments available for them.
Talking about the investment options available, it would be very unfair to not state about Mutual Funds.
You might be thinking why Mutual Funds, they are high risk and high return investment, and they invest in equity; it might not suit senior citizens. You are partially right, Mutual fund does invest in equity, but there are other kinds of mutual funds that provide capital security and good returns, called “Debt Fund” and “Hybrid Fund.”
Debt Funds are those fund which invests in government bonds and company debentures. Bonds and debentures are fixed return instrument that gives a fixed return in a fixed time. More like FD but in this case, your money is invested in the company or invested in the government. You lend to them.
Hybrid funds are those funds that invest a part of your money in debt component and rest in equity. The portion of equity and debt depends on the type of hybrid fund. Investing in this can give security of debt and growth of equity.
Depending on the portion of debt and equity, hybrid funds are classified as equity and debt for taxation purposes. More debt component means classified as debt fund and vice versa.
They can give a higher return on your investment and can go up to 15% per annum, based on that you invested for the longer term. The performance of the market also matters in fund performance. The liquidity is high; you need to pay the minimum charge if you redeem before the particular period called exit load.
The taxation on debt fund is classified as short term and long term. If you sell your fund before 36 months, you are bound to pay short term capital gain tax; debt funds are taxed according to the tax rate of the investor. If you sell your investment after 36 months, long term capital gain tax is applicable, which is flat 20% applicable with the benefit of indexation.
Comparing with the TDS on FD debt mutual funds are more tax efficient.
Senior Citizen Savings Scheme
Senior Citizen Saving Scheme is a saving instrument that is backed by the government of India launched in 2004, with the sole purpose to provide financial stability to retirees. It is offered to only Indian residents of over the age of 60 years others and HUF are not allowed. Retirees who opted for Voluntary Retirement Scheme (VRS) are also allowed whose age is between 55-60. Retired defense personnel can invest irrespective of their age. SCSS provides the highest security and highest interest rate.
Senior Citizens can invest individually or jointly and can open the account by investing a sum of 1000, the maximum amount to be invested is 15 lakh in multiples of 1000. SCSS can be opened by visiting any public/private bank or post office.
Upon investing the amount is locked for five years and can be extended for a block of 3 years on the holder’s wish only once. Presently in March 2020, the interest rate is 8.6% per annum. The interest rate is revised every quarter. Payment is released to the investor annually, and if you want to calculate your earnings, you have to compound with the interest rate of that particular quarter.
Premature withdrawal is allowed only after one year of investing and with withdrawal charges.
Investing in SCSS qualifies of tax deduction under Section 80C, which itself has an upper ceiling of 1.5 lakhs. But interest earned is taxed, which lowers your return. And if your interest earnings are more than Rs 50,000 in one financial year, you have to pay TDS (Tax Deducted at Source) for the interest earned.
SCSS is very easy to open, operate, and transfer accounts at any bank or post office in India. It can be open online or offline.
Post Office Monthly Income Scheme
Post office Monthly Income Scheme is one of the best saving schemes which is out in the market; it host varies of features under the purview of the government of India. It gives sovereign security and fixed monthly return. Is suited for those who seek regular income from their investments. It can be opened with as low as INR 1500 and as per your wish you can multiply the amount.
To open POMIS, you can visit your nearest post-office and can open the account individually or jointly. If opened individually, the maximum limit on investment is 4.5 lakh, and if opened jointly, it has a limit of 9 lakhs. Its investment period is five years. This investment provides fixed return unaffected with market forces.
Monthly interest can be collected from the post office or directly into your savings account. At maturity, you can directly transfer the amount invested to your bank account. You can reinvest the amount obtained at maturity to get the double benefit for five years.
For Example, if you invested 4.5 lakhs, you will get INR 2888 at 7.7% interest rate. And at the end of 5 years, you will get your 4.5 lakh after five years in your bank account.
There is no tax benefit for investing in POMIS, no benefit under Section 80C. The interest earned is taxed as per the holder tax slab; there is no TDS on interest earned.
These bonds are raised by various government bodies like Railways, NHAI, Finance Corporation, Housing and Development Corporation, NTPC to raise money for there project. Since these are government bodies, the non-payment risk is nil; the interest return is fixed with tax-saving on the interest earned.
Depending on the project length its tenure varies, usually 10-30 years. So there is no flexibility in terms of tenure. And there there is caping on the maximum amount to be invested of 10 lakhs.
The interest rate on these bonds generally lies between 7-7.5% and varies depending upon the economic condition. The interest rate is not very attractive when the economy is in a downturn. So it cannot beat inflation in a downturn economy.
Every year a coupon(interest earned) is paid, and it will be tax-free income while the principal invested will be return back at maturity. The investor must calculate post-tax return and compare various investment; if the investor is in a higher tax bracket, it will be more beneficial.
Tax-free bonds would be attractive only if investor falls in the higher tax bracket, is looking for regular income and has no concerns on liquidity as these bonds are not traded frequently on the stock exchange.
There are many other options available for investment for senior citizens. Still, these investments have to be chosen accordingly to the risk appetite and investment horizon of the investor. Not every investment is made for everyone. His financial goals should drive product choice.
The above mention data are the best of my knowledge. Mentioned investment products carry risk. Please consult with your Financial Advisor before investing in any of the products. Until then Happy Investing 🙂
Must check these too:
- How to calculate taxable income in India?
- How to invest in index funds in 2020?
- Top 5 tax saving options in India under Section 80C
- National Savings Certificates – How to invest?