RETIRE FROM WORK, NOT FROM LIFE
Senior citizens may need a financial guide to select the right investment vehicle. Coronavirus and the nationwide lockdown have taken its toll on the economy, which has had a ripple effect on the returns of various equity and debt financial products. Among those hit hardest by falling investment returns are senior citizens.
In life, everything changes except one thing, that is planning for the future. Regardless of your age, you have to think of ways to make your days to come much better than what they are today; this is where investments come into the picture. Given the age constraint, senior citizens will have to ensure that they pick the right investment options.
With time not on their side, it is advisable to choose to invest in fixed income securities or schemes. This is in their best interest as they are not in a position to suffer losses and recover without being financially constrained.Here are the top investment options for senior citizens:
PMVVY
The Pradhan Mantri Vaya Vandana Yojana, or PMVVY, is a social security scheme for senior citizens, implemented through the Life Insurance Corporation of India (LIC).
This gives an assured minimum pension. LIC invests the corpus in the market and generates market-related returns. If such returns are lower than the guaranteed return, the differential is subsidised by the Union government. This Scheme has been extended till March 31, 2023.
The assured rate of return has been set at 7.4% for 2020-21. Thereafter, it will be reset every year.
The minimum investment has been revised to ₹1,56,658 for an annually paid pension of ₹12,000 and ₹1,62,162 for getting a monthly pension of ₹1,000. The upper limit is ₹15 lakh of initial subscription.
The scheme also offers a death benefit in the form of return of purchase amount to the nominee. The minimum entry age for this scheme is 60 years, there is no maximum age limit. The maximum investment allowed per person is ₹15 lakh. The PMVVY scheme allows premature withdrawal only in the case of critical and terminal illness. However, only 98% of the purchase price is payable as surrender value in such a case. Loan facility is available against PMVVY after three policy years, up to 75% of the purchase price. There is no special tax benefit. You can buy a PMVVY pension from LIC. Policy term is 10 years.
Senior Citizen Savings Scheme (SCSS)
Senior Citizen Savings Scheme (SCSS) is one of the several small savings schemes offered by the Government of India. This investment scheme is exclusively for the senior citizens of India. SCSS offers much higher returns than a regular savings bank account. The interest rate is revised periodically depending on various economic factors. The SCSS scheme is currently providing returns at 7.4% and would remain the same until maturity if you open an account now.
Investing in SCSS is considered safe as sovereign guarantees back the scheme. You can open an SCSS account at the post office or authorized banks. You have to be 60 years or older in order to invest in SCSS. If you are aged between 55 and 60 and have retired on the voluntary retirement scheme (VRS) or superannuation, then you are also eligible to invest. You can invest up to Rs 15 lakh while the minimum investment is Rs 1,000.
SCSS comes with a lock-in period of five years. Once the account matures, you can extend it for another three years. Premature withdrawals are allowed and come with certain penalties. You can open joint accounts with your spouse, who is also a senior citizen. You are allowed to open more than one account. However, your investment across all SCSS accounts shall not exceed Rs 15 lakh. This scheme provides tax benefits under Section 80C and Section 80TTB.
Post Office scheme
Interest rate for the Post Office Monthly Income Scheme has been reduced to 6.6% since April 1, 2020. The reason that the interest rate is lower than the previous two schemes is that the MIS is for everybody. The government has a special dispensation for senior citizens, and gives a higher return in, say, PMVVY and SCSS. In MIS, the upper limit is ₹4.5 lakh in a single account and ₹9 lakh in a joint account.
Public Provident Fund
Usually, PPF is not viewed as a retirement planning avenue. However, in a falling interest rate regime, the factors that need to be considered are: the 15-year term can be extended in blocks of five years i.e. there is no limit on the term of a PPF; interest rate is usually on the higher side compared with the prevailing rate regime, currently it is 7.1%; tax-efficiency of the interest, apart from Section 80C benefit for contribution up to ₹1.5 lakh per year. You can also withdraw from the PPF as per rules.
Bank deposit
Bank fixed deposits (FDs) are one of the most preferred investment options for Indians, especially for senior citizens, when they have a lump sum at their disposal. This is because investing with banks is considered relatively safer than other investment options. However, the only catch here is that you need to have a substantial amount to invest in order to realize considerable income in the form of interest.
The interest offered by FDs is much higher than that of a regular savings bank account. FDs offer investors with an assured rate of return, and it is revised periodically depending on the economic factors such as lending rate, MCLR, SLR, and so on. Rest assured that your investment is safe and is not exposed to any risk.
The interest rate on your FD investment varies across banks. It majorly depends on the tenure and the ticket size of your investment. Senior citizens are offered a 0.5% higher interest than the general public. You can open joint accounts, and there is no capping on the investment. FDs provide much-needed liquidity. You can make premature withdrawals in exchange for a small amount of penalty.
Mutual Fund SWP
You may invest your money in MF schemes as per suitability i.e. in debt and equity funds. Returns are market driven, there is no guarantee or commitment. A systematic withdrawal plan (SWP) gives you complete flexibility over how much you want to redeem per month/other frequency plus lump sum withdrawal as per requirement. Returns are tax-efficient over a holding period of three years for debt funds and one year for equity funds. In government-oriented schemes, your money gets locked in for that tenure.
Disclaimer: All the views in the Blog is personal of the author not attributing to anyone.
