Sourced with thanks from financialexpress.com
Certainty of income and protection of capital are very key to investment requirements for senior citizens. Appreciation of capital while important for senior citizens, will have to be considered against the risks involved as they are quite averse to potential losses that can occur in riskier investments. In such a situation, there are a few investments that senior citizens can look at as put together by the author in the article below. Team RetyrSmart
Senior Citizens could rely on these investment opportunities
- Fixed Deposits
Despite the trend of lowering interest rates in the recent months, fixed deposits continue to remain an extremely popular investment instrument for risk-averse investors like senior citizens, especially at a time when capital protection has become as important as capital appreciation. These are easy to operate and highly liquid instruments offering preferential rates (up to 0.5%) for senior citizen depositors. Plus, senior citizens, who often do not want to invest in market-linked products due to the associated risks, can benefit from monthly, quarterly, half-yearly and annual interest pay-outs from a non-cumulative fixed deposit (FD).
That being said, “while a majority of banks are currently offering FD interest rates in the range of 3.25-6.25% p.a. for senior citizens depending on the bank and the investment tenure, there are some banks that are offering higher rates up to 7.50% p.a. Now, senior citizen depositors can open an FD with a bank offering higher rates after due diligence and risk assessment, and while doing so, they can limit their deposits to Rs 5 lakh per bank for added security as that much is covered by the DICGC,” says Adhil Shetty, CEO, Bankbazaar.com.
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In addition, they can also break their corpus into multiple FDs with different tenures to create an investment loop so that they could be benefited if the rates increase in the future. This is called the FD laddering technique which also ensures high liquidity without the risk of losing interest income due to premature withdrawals in the face of a cash-crunch situation.
- Senior Citizens Savings Scheme
Senior citizens looking for higher rates than FDs without taking undue investment risk could also invest in the government-sponsored Senior Citizens Savings Scheme. The SCSS is currently offering 7.4% p.a. and people above the age of 60 years can invest individually or jointly with their spouse anywhere between Rs 1,000 and Rs 15 lakh in it at a post office or a participating bank. The SCSS has a tenure of 5 years and can be extended to another 3 years after submitting Form B. Most importantly, investors can earn interest income on a quarterly basis against their SCSS investment and the interest rate is fixed throughout the investment tenure.
However, the quarterly interest rate applicable when the investment matures after 5 years would apply during the extended 3 years. “Investors can also withdraw prematurely after paying a 1.5% penalty if withdrawn before 2 years of completion and 1% penalty if withdrawn after 2 years of completion.
Furthermore, the principal amount deposited in SCSS qualifies for tax deduction benefit up to Rs 1.5 lakh in a year under Section 80C of the I-T Act and the interest received is taxed according to the applicable slab rate. All this makes SCSS a great investment fit for senior citizens,” informs Shetty.
- Pradhan Mantri Vaya Vandana Yojana
Senior Citizens can also consider Pradhan Mantri Vaya Vandana Yojana (PMVVY) offered by the LIC for generating regular income in the form of pension. However, its biggest disadvantage is the long lock-in period of 10 years. As its interest rate remains fixed throughout the entire tenure, any steep upward movement in the fixed deposit interest rates during the 10-year period might result in significant opportunity cost for the investor.
- Multicap Funds
Senior citizens with higher risk appetite and having surplus funds for long-term capital appreciation can consider investing in multicap funds through the SIP mode. Multicap funds can invest across the equity market spectrum without any SEBI imposed exposure limits on market capitalization, sector, segments or themes.
“This makes multicap funds the best equity fund vehicle in the current market scenario as they can exploit market opportunities arising from the volatility in the broader market. In case of further corrections, the SIPs in multicap funds can be topped with lump sum investments in a staggered manner. Such lump sum investments will help in averaging the investment costs and thereby, generate higher returns as and when the market stabilizes. Investors, however, should keep at least a 7-year investment horizon for their multicap fund investments to make the most from the economic and market cycle,” advises Sahil Arora, Director, Paisabazaar.com.
- Floating Rate Savings Bonds
Senior citizens can also invest in the floating rate savings bonds issued by the RBI with a tenure of seven years. There is no age limit or the maximum amount upto which you can invest in these bonds. These bonds can be bought online and offline through the authorised banks.
“Any person who is a resident of India can invest in these bonds. A resident who becomes non-resident later on is allowed to continue to hold these bonds. Unlike SCSS and PMVVY where the rate of interest gets fixed for the full tenure, the interest under these bonds keeps floating and the interest for a half year is announced by the RBI. Presently the rate of interest is pegged at 0.35% higher than those payable on the National Saving Certificates.
So, any change in the interest on NSC shall automatically change the interest payable on these bonds. The interest on these bonds is taxable and is subject to deduction of tax at source,” says Balwant Jain, tax and investment expert.
Individuals between the age of 60 and 70 years are allowed to go for premature redemption of these bonds after the seventh year of their tenure. The individual bond holder who is between 70 and 80 can go for early redemption any time after five years and those above 80 years can go for redemption after the bonds have run for 4 years.