As a senior citizen, while safety of capital is of paramount importance, don’t forget to take into account the tax factor. Taxes can actually erode the value of your returns. Also another black hole to watch out for is inflation. Many seniors opt for the security of assured returns and end up finding that the value of their investment has been eroded due to inflation.
You are retired and are looking forward to a relaxed life. You want to spend your time from now to do the things that you would love to do. This can be achieved by smart financial planning to give you the financial security needed in your old age. If you are wondering where to invest, here are some excellent investment options for you.
- Senior Citizens Savings Scheme(SCSS): This is a savings scheme launched by Government of India particularly for senior citizens. All seniors overt the age of 60 years can invest in this scheme. Those who are above 55 years are also eligible to invest in this scheme subject to certain conditions. The scheme has a lower limit of Rs. 1000 and a upper limit of Rs. 15 lakhs. The scheme has a period of 5 years and carries an interest rate of 9%. There is a penalty of 1.5% of the amount deposited, if the deposit is withdrawn before 2 years and 1% if the amount is withdrawn after 2 years but before the expiry of the term.
- Post Office Monthly Income Scheme (POMIS): Are you looking for a guaranteed monthly income? Then monthly income scheme (MIS) offered by the various post offices in the country are ideal for you. You can invest minimum of Rs 1000 and maximum of Rs. 3 lakhs singly or Rs. 6 lakhs jointly in this scheme. You earn 8% interest on your deposit and 10% bonus after the end of tenure, which is 6 years. If you withdraw after a year, 5% of the amount deposited as penalty. However there is no penalty after 3 years.
- Post Office Time Deposit (POTD): This is similar to term deposits offered by the banks. The minimum amount to be deposited is Rs. 200 and there is no maximum limit on the amount deposited. The period for the deposit ranges from 1 year to 5 years and the interest rate ranges from 6.25% to 7%, compounded quarterly.
- Fixed Deposits (FD): Offered by banks and companies, you are better off opting for the bank deposits. Though the interest rates on the bank deposits are lower than the interest rates on company deposits, bank deposits are safer. Always choose deposits with AAA rating, as they are the safest from amongst all the deposits.
- Monthly Income Plans (MIP): If you are looking for higher returns, then these options are suitable for you. These are market linked investment options offered by mutual funds. MIP are a type of balanced funds with 15-20% of their assets in equities. The dividends you get here are tax-free but you have to bear the market risk.
Comparison of various instruments
| SCSS | POMIS | POTD | FD | MIP | |
| Tenure | 5 | 6 | 1-5 | Up to 5 | Indefinite |
| Min. investment | 1000 | 1000 | 200 | Varies | 5000 |
| Max. investment | 15 lakhs | Single -3 lakhs Joint – 6 lakhs | No limit | No limit | No limit |
| Safety | Highest | Highest | Highest | Highest for AAA rated deposits | Slightly risky |
| Tax benefits | None | None | None | None | Tax-free |
| Returns | 9% | 8% | 7.5% (highest) | Varies | Varies |
As a senior citizen, while safety of capital is of paramount importance, don’t forget to take into account the tax factor. Taxes can actually erode the value of your returns. Also another black hole to watch out for is inflation. Many seniors opt for the security of assured returns and end up finding that the value of their investment has been eroded due to inflation. So it makes sense to divide your investment amount between the assured return schemes for capital security and market-linked scheme for higher returns. This will enable you to get the best of both the worlds.