After retiring from an active working life, the ability to take risk in investing is less; hence it is important to invest your retirement funds wisely and carefully. The top priority should be to ensure a regular source of income. It is also essential to have some investments in liquid assets to meet any unexpected emergency.
Park some part of your retirement funds in the Senior Citizen Savings Scheme (SCSS) available in banks and post offices where you can earn higher interest rate. One can invest up to R15 lakh under this scheme. In case your spouse is also above 60, then you can invest up to R30 lakh in aggregate. The investment is exempt from tax under Section 80C but the interest payment is taxable. It has a lock-in period of five years that can be further renewed for another three years. In case of an emergency, there is a provision for premature withdrawal by paying a fine of 1-1.5% on the invested amount.
Post office instruments
The post office offers a popular instrument known as post office monthly income scheme wherein one can invest up to R4.5 lakh in a single account and R9 lakh in a joint account. It comes with a maturity period of six years. One can withdraw prematurely with a one per cent penalty. Returns are taxable and it is a preferred option for those in the lower tax bracket.
Post office time deposits (POTDs), similar to bank fixed deposits, are another option. There is no cap on how much one can invest but the interest is payable annually. The investment duration ranges from one to five years. Interest income is subject to tax but tax is not deducted at source. As these instruments are backed by the government of India, these are risk-free and offer guaranteed returns.
This is ideal for those who have many immovable properties but little liquid assets. Under this scheme, a retired person keeps a house as collateral with the bank. In return, the bank makes monthly payments according to the value of the house. The borrower can opt for monthly, quarterly, annual or lump sum payments. As it is a loan, the interest rate is either fixed or floating and the payments are not taxable. The maximum period for which the property can be mortgaged is 20 years, post which either the borrower or the legal heir (in case of death of the borrower) can either repay the loan or sell the house and settle the transaction. The excess amount generated in the process is passed on to the borrower or the heir.
One can also park 10-20% of retirement funds in market-related products, preferably in equity mutual funds. It is prudent to invest in large and multi-cap funds. Similar to post offices, mutual funds also offer income plans. The regular income comes from dividend payouts, which are tax-free for investors. But unlike post office plans, where returns are guaranteed, there is no such surety about dividends from mutual funds. These are paid either monthly, quarterly or annually and the dividend amount is not fixed.
- You can park up to R15 lakh in Senior Citizen Savings Scheme
- Check out post office monthly income schemes and term deposits for guarnateed returns
- Reverse mortgage is ideal for those with many real estate properties but limited liquid cash
- 10-20% of retirement funds can be put in equity mutual funds, especially monthly income plan schemes
- Make some investments in liquid assets to meet any unexpected emergency