When it comes to the retirement age, there is a need for additional financial security with assured returns. This is the phase when people seek a relaxed, safe and secure time after a life long hard work. The investment opportunities here are mentioned keeping retirees as senior citizens.
Under the current circumstances, there are multiple types of investment instruments that have been designed especially for retirees. Such instruments have minimal risk involved with assured maximised returns. The prime target of the retired investors is to minimise the tax liabilities, providing a regular stream of earning.
Investment Options for Retired Citizens
- Senior Citizens’ Savings Scheme
This is considered to be the most popular investment instrument among the majority of the retirees. As per the name suggests, this scheme can be availed only by the senior citizens as well as early retirees. Any senior citizen investor with the matching profile can avail this scheme easily from any bank or post office. For the early retirees, the custom is to invest in SCSS within one month of receiving the relevant post-retirement benefits. SCSS has a tenure of 5 years which is expandable up to 3 more years on maturity.
The contemporary rate of interest in this scheme is 8.6% p.a. which is payable every quarter Once the investment is done, the interest rate becomes constant, irrespective of future performances and changes. Multiple accounts can be maintained under this scheme but the maximum investment limit should not exceed INR 15 lakh. Under the current circumstances, SCSS offers the highest rate of returns when compared to any other taxable fixed income schemes. Other highlighting features of the scheme include the allowance of premature withdrawals and offer of tax benefit under Section 80C of the Income Tax Act on the invested amount.
- Post Office Monthly Income Scheme or POMIS
Under this scheme, you can invest a certain amount and earn a fixed interest every month. You can visit any post office to open your account to generate a steady income. The maximum limit to invest in case of individual ownership is INR 4.5 lakh and INR 9 lakh in case of joint ownership. The rate of interest is 7.8% p.a. which is paid on a monthly basis. This scheme does not offer any tax redemption opportunities and the interest earned is also entirely taxable. This scheme comes with a lock-in period of 5 years, which means you can withdraw the invested amount post maturity of the scheme.
- Bank Fixed Deposits
This is considered to be the most conventional and convenient investment option among most of the retirees. The assured safety, security and the ease of operation make it so popular. However, the rate of interest is declining for the past few years and is currently offering 7.25% p.a. for a period of 1-10 years. The senior citizens are offered an enhanced rate of around 0.25%-0.50% p.a. However, the interest rate varies from one bank to another.
Bank FDs offer the flexibility of choosing the tenure which is not possible in case of POMIS or SCSS. The financial experts advise exercising the “laddering” technique that ensures better fund management, guaranteeing higher returns because of the differing tenures and also minimize the risk of ‘re-investment’. Maintaining multiple FDs with different tenures is an effective tool to meet certain financial targets within a stipulated time.
A 5-year long FD investment offers tax-saving opportunities under Section 80C of the Income Tax Act, which is a good way of investing for wealth creation and tax planning. However, in that case, premature withdrawal is prohibited and the lock-in period runs for 5-years. The interest income is taxable. Careful consideration is required as most of the banks offer a slightly lower interest rate in this scheme than the non-tax-saving ones.
- Mutual Funds
Considering the subject of inflation, it is advised to make certain investments linked to the equity sector. The average retirement period runs for around 2 decades, a considerable time span to witness the effects of inflation concretely. Therefore, the investment tools must cover this issue by actively coping up with the price rise.
Depending upon the risk appetite of the investor, a certain percentage of the retirement corpus might be allocated to the mutual fund sector. The ideal way is to diversify the investment into large-cap funds, balanced cap funds and even MIPs.
Debt funds are also a good investment option for retirees. The rate of taxable percentage is lesser in this scheme than bank fixed deposits. Easy liquidity is another favourable feature of this scheme.
- Tax-free Bonds
Although currently out of circulation in the primary market, these sorts of tax-free bonds can also be a favourable choice of investment instrument for the retirees. These bonds are mainly released by government-backed institutions like HUDCO, NHAI, NTPC Ltd. As these bonds are listed securities, these can be easily bought and sold as per the financial requirements and market behaviour.
Before settling for this sort of investment, it must be considered that this sort of investment is only for long-term, with a minimum tenure of 10 years. There is no opportunity for premature withdrawal. Moreover, the interest payable is often on a yearly basis, therefore, not suitable to meet the monthly expenses. As it is tax-free, therefore there is no issue of TDS and offers low liquidity.
- Annuities
There are several varieties of insurance schemes that offer annuity benefits. Such sorts of investments could also be considered favourable for the retirees. The rate of interest offered by these schemes roughly revolves around 5%-6% p.a. and is totally taxable. But, one thing must be kept in mind that once any pension plan is bought, then the corpus utilized for purchasing becomes non-returnable.
Summary
Careful market research and balanced diversification of the funds are the key tools for successful investment. Depending on financial needs, professional guidance can be easily availed who will decide for the investor to the best of his/her interest.