Senior Citizens Savings Scheme
This is one of the most popular options for retirees over the age of 60. The maximum that an individual can invest is R15 lakh. Generally, the duration of the scheme is five years and it offers a handsome return of 9% per annum. It offers interest payout on a quarterly basis and investors also have the option to prematurely liquidate their investment after the expiry of one year, though after deduction of some penalty in the form of a nominal percentage of the investment.
Investment in this scheme also offers tax advantage in the form of a deduction under Section 80C of the Income Tax Act. The interest income is taxable and could be subject to deduction of tax at source (TDS). One can furnish a declaration in Form 15-H as applicable to avoid deduction of TDS.
Monthly Income Scheme (MIS)
The post office MIS is another investment avenue retirees can consider. Offering an assured monthly income, the scheme spans six years, giving a return of 8.4% per annum. It offers monthly interest payouts, which can be either re-invested or withdrawn. However, premature withdrawals of the principal are permitted after a year from the date of investment. Again, like SCSS, penalty as a nominal percentage of the initial amount invested applies on premature withdrawals of principal. The major drawback of MIS from post office is that it is not eligible for tax benefits and the interest income from investment in such schemes is taxable.
Fixed deposits/Time deposits
A time deposit is essentially a fixed deposit of a fixed sum for a fixed duration at a fixed rate of interest, and it can be made with any scheduled bank or post office. Investors can choose from various term plan options and returns vary based on the duration. Also, most fixed deposits offer a higher interest rate (generally 0.50% higher than the regular rate) to senior citizens, which makes FDs all the more attractive. Such investments offer good liquidity through periodic interest payouts. Premature withdrawals are permitted, but may entail a penalty. Other liquidity options are linking the term deposit with the savings bank account. Time deposits are eligible for tax benefits under Section 80C of the IT Act only if under the lock-in of five years. However, interest payouts are taxable and normal TDS applies on such payouts.
Various options from the MF segment are also available. It is an indirect form of investment in the capital market which, although a bit risky, offers higher returns. Mutual funds basically have diversified portfolios and the investor can choose among various plans depending on his risk appetite and the underlying assets of the scheme. Systematic investment plans (SIPs) are the preferred mode to invest, rather than lumpsum investments. Monthly income plans (MIPs) and fixed maturity plans (FMPs) are available, but they do not offer assured returns. Investors can choose between the periodic dividend option and the growth/ reinvestment option. Be careful as MF investments provide no certainty on the preservation of principal, and the return is not assured in most cases.
Suraj Nangia is founder director, Nangia Advisors