In India, parents depending on their children financially after retirement is followed as custom since ages. However, the scenario has changed in the past few decades. Retirees of today don’t want to be a burden on their children and prefer to live their lives on their own terms with financial independence. While retirement savings and investment income may seem enough to fund your lifestyle after retirement, keeping inflation and increasing medical expenses in mind, retirees must safeguard themselves with other sources of income.
Keeping the monetary interests of senior citizens in mind, the Indian Government offers various investment options that can help them live financially independent. Let’s have a look at our investment options.
- Senior Citizens’ Saving Scheme (SCSS)
If you’re 60 years or above, Senior Citizens’ Saving Scheme (SCSS) is a must-have in your investment portfolio. This savings scheme can also be availed by those who have voluntarily retired at the age of 55 years. However, they must avail this scheme within one month of getting their retirement funds. For those who have retired from the armed forces have no age restriction. People who are eligible for this scheme can apply for it from a post office or a bank.
Although SCSS has five-year long tenure but it can be further extended by three years once the scheme matures. As far as its rate of interest is concerned, it is 8.6% per annum, which is payable quarterly and fully taxable. Like POMIS, one can open multiple accounts under SCSS. What else, the scheme has the maximum investment cap of Rs 15 lakh, it is eligible for tax benefits and also allows premature withdrawals.
- Post Office Monthly Income Scheme (POMIS) Account
POMIS account can be opened in any post office in India. It is a five-year investment that can be opened as an individual account as well as a joint account (by two or three adults). For single ownership account, the maximum cap for investment is Rs 4.5 lakh. Similarly for joint ownership, the maximum cap for investment is of Rs 9 lakh. The interest rate is subject to change and is currently at 7.5% per annum, payable monthly. Investment in POMIS doesn’t give you any tax benefit. Also, its interest is entirely taxable. One major benefit that this scheme provides is that it operates automatically. If you can’t go to post office every month, you can request for automatic transfer of the POMIS interest to recurring deposit through savings account of the same post office.
- Bank Fixed Deposits
Bank fixed deposits are common and a popular choice not only for retired people but also for others. Fixed returns and easy operations are some of the benefits of bank fixed deposits that makes it a suitable and reliable option for retirees. Even though over the last few years, the rate of interest for fixed deposit accounts have declined still it is a far better option than a savings account. As of now, the rate of interest that various banks are offering on fixed deposits of 1 to 10 years of tenure is around 7.25% per annum. For senior citizens, banks provide an extra 0.25-0.5% per annum rate of interest on the investment.
One of the benefits of investing in bank fixed deposit is that it offers flexibility in terms of tenure. Unlike other investment options such as POMIS, you don’t need to necessarily lock-in your money for a fixed tenure. You can spread the amount across different FD accounts with different maturity dates. Doing so will provide liquidity to funds and reduce the re-investment risk.
Those who want to save their taxes can opt for the five-year tax saving bank FD. However, such a deposit will have a lock-in period of five years, which means that you cannot withdraw money before maturity. Also, the rate of interest offered on 5-year deposits is usually slightly lower than the non-tax saver deposit rates. Therefore, make your choice carefully.
- Mutual Funds
Mutual fund is yet another investment option that offers better returns than most other investments. As per their wish and risk profile, retirees can invest a portion of the retirement funds in equity-backed mutual funds with further variation across balanced funds and monthly income plans (MIPs). To produce stable returns, it is advisable to steer clear from volatile funds such as mid-caps and small-caps, thematic and sectoral funds. Retirees can also consider including debt mutual funds as a part of their investment portfolio because of its easy liquidity.
- Immediate Annuities
Immediate annuity schemes of life insurance companies is another option that retirees can choose to invest in. It has diverse pension options such as lifetime pension for self, post death to spouse and then to heirs. In such schemes, the pension or the annuity is of around 5-6% per annum and is fully taxable. However, the amount used to purchase annuity is non-returnable under any scheme. Retirees who are interested in diversifying their investment portfolio can avoid this investment option as other investment options may offer better returns.
- Tax-free Bonds
Although, tax-free bonds are not currently available in the primary market but can be bought and sold on stock exchange. Most of the tax-free bonds carry highest safe ratings and also feature in a retiree’s portfolio. They are issued by government-backed institutions such as Indian Railway Finance Corporation Ltd (IRFC), National Highways Authority of India (NHAI) and Housing and Urban Development Corporation Ltd (HUDCO).
Before investing in tax-free bonds, retirees must know the following things:
- They are long-term investments and mature after 10, 15, 20 years.
- There is no Tax Deducted at Source (TDS) as the interest is tax-free.
- The liquidity is low.
- These bonds usually offer interest payouts annually, and therefore, may not meet the retiree’s monthly income requirements.