Senior Citizen Day: In a falling interest rate regime, senior citizens and retirees who depend on fixed-income investments for their regular income needs, fall short of investment options. When the rate of interest falls, the existing investments of senior citizens face the re-investment risk. On renewal, the yield on fresh investments is lesser because of which the cash-in-hand gets squeezed, impacting their regular income needs. Although there are a plethora of investment options, not all could be safe investments and not all could meet their regular income needs.
Here are four safe investment options that any senior citizen or a retiree may consider on the Senior Citizen Day 2019:
1. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
PMVVY is an investment that has a tenure of 10 years and comes with a fixed return. To invest one has to approach only LIC of India, and the investment can be done either offline or online from the website. PMVVY is available up to 31st March 2020. The scheme can be purchased by payment of a lump sum called the ‘Purchase Price’. The pensioner has an option to choose either the amount of pension or the Purchase Price. The minimum and maximum Purchase Price are Rs. 1,44,578 and Rs. 14,45,783 for yearly pension, correspondingly providing an annual pension of Rs 12,000 and Rs 1.2 lakh respectively. The pension rates for Rs.1000 of Purchase Price for yearly pension payment is Rs 83.00 per annum that makes PMVVY offer an annual return of 8.3 per cent. Considering falling interest rates, PMVVY can definitely be explored by senior citizens to invest a portion of their savings in it.
2. Senior Citizen Saving Scheme ( SCSS)
For those who are 60 years and above SCSS is a popular investment option. The rules also allow an individual of the age of 55 years or more but less than 60 years, who has retired on superannuation or under VRS to open account subject to the condition that the account is opened within one month of receipt of retirement benefits. SCSS is for a period of 5 years and more than one account may be opened, but the total limit is capped at Rs 15 lakh. Interest earned in Senior Citizen Saving Scheme is fully taxable and is to be added to one’s ‘Income from other sources’. SCSS suits senior citizens looking for a high fixed rate of return and a regular income on a quarterly basis. After maturity, the account can be extended for further three years within one year of the maturity by giving an application in a prescribed format. In such cases, the account can be closed at any time after the expiry of one year of extension without any deduction. Currently, (July 1 to September 30, 2019) the interest rate on SCSS is 8.6 per cent per annum, payable quarterly.
3. Bank fixed deposits
Bank fixed deposits have always been popular and the first choice for most senior citizens. Bank FDs are flexible when it comes to choosing the interest rate payouts as they offer monthly, quarterly, half-yearly or annual interest income to the FD holders. Not all front line commercial banks are offering anything above 8 per cent rate of interest. However, depending on the bank and tenure, most Small Finance Banks are offering an interest rate of above 8 per cent on some of their tenure. Remember, each depositor of a registered insured bank including commercial banks, scheduled banks and Small Finance Banks are insured up to a maximum of Rs.1 lakh for all bank deposits, such as saving, fixed, current, recurring deposits under the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
Although there’s an implicit guarantee, it’s better to diversify across banks also to avoid TDS if the amount of investment is high. The downside of bank FD is that it has low post-tax inflation-adjusted returns. Bank FDs, therefore, best serves as capital preservation investment. Currently, IDFC is one bank that still offers 8.25 per cent on 1 to 2-year deposit and 9 per cent on 2-year deposit to seniors. Jana Small Finance Bank is offering between 8.6 per cent and 9.10 per cent on deposits above 181 days to 5 years. For senior citizens, the AU Small Finance Bank is offering between 8.27 per cent and 8.6 per cent on deposits between12 Months 1 Day and 60 Months.
4. Company fixed deposit
Company or corporate fixed deposits are also popular amongst senior citizens. Currently, some FDs such as Mahindra Finance FD or Bajaj Finance FDs are offering anything upwards 8 per cent on their fixed deposits. It is important for seniors to not go overboard and invest a sizeable portion in them as they are relatively riskier than bank FDs and also stick with prominent and established companies. If one has to invest then rather instead of long term, it should be better to park funds in medium-term deposits in them under regular income option.