As protection of the hard-earned money is their prime objective, senior citizens have very low risk appetite and primarily rely on fixed income instruments.
With the Reserve Bank of India (RBI) continuing to cut policy rates leading to lower fixed deposit (FD) rates offered by banks, senior citizens are a worried lot today. As protection of the hard-earned money is their prime objective, they have very low risk appetite and primarily rely on fixed income instruments, where the capital invested doesn’t fluctuate and returns are guaranteed. So, rate cuts directly affect their budget.
Although the returns on bank FDs are guaranteed with the interest rate remaining fixed for the investment period, but in case the bank goes for liquidation, investors would get back maximum Rs 1 lakh through deposit insurance. So, it is very important to invest in the schemes where the principal invested is fully protected.
Considering the protection of capital and rate of return, following are some investment options:
Senior Citizen Savings Scheme (SCSS)
The Senior Citizen Savings Scheme (SCSS) is offered by Post Office, the protection of capital invested in which is guaranteed by the government and hence is fully safe. The rate of interest on SCSS is decided by the government on a quarterly basis and currently is 8.6 per cent per annum. Tenure of the SCSS investment is 5 years and the prevailing interest rate on the date of investment remains fixed for the investment period. The maximum amount may be invested in SCSS is Rs 15 lakh. The amount invested is eligible for tax benefits u/s 80C of the Income Tax Act up to Rs 1.5 lakh in a financial year, but the interest earned over the 80TTB exemption limit of Rs 50,000 a year is taxable.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a government investment scheme for senior citizens, which is offered by the Life Insurance Corporation (LIC) of India. The capital invested in the scheme bears the Sovereign Guarantee of the Government of India and the interest rate is 8.3 per cent per annum fixed for the investment period of 10 years. The maximum amount may be invested in the scheme either singly or jointly by a senior citizen couple is Rs 15 lakh. The amount invested is eligible for tax benefits u/s 80C of the Income Tax Act up to Rs 1.5 lakh in a financial year, but the interest earned is considered as pension income and is taxable.
Post Office Time Deposit (POTD)
Like SCSS, protection of capital invested in Post Office Time Deposit (POTD) is also guaranteed by the government and fully safe. Currently the highest rate of interest is 7.7 per cent for 5-year time deposit and there is no maximum limit on deposit amount. Like SCSS, in 5-year POTD also, the amount invested is eligible for tax benefits u/s 80C of the Income Tax Act up to Rs 1.5 lakh in a financial year, but the interest earned over the 80TTB exemption limit of Rs 50,000 a year is taxable.
LIC Jeevan Akshay
The capital invested in LIC Jeevan Akshay also protected through the Sovereign Guarantee of the Government of India. It is an immediate annuity scheme, in which investors may get life-long pension at a prevailing rate on the date of allotment of the policy. The rates vary with the age of the annuitant and the annuity option he/she chooses.
LIC Jeevan Shanti
LIC Jeevan Shanti has options of both immediate and deferred annuity and the capital invested in this scheme is also protected through the Sovereign Guarantee of the Government of India. Like Jeevan Akshay, the rates of immediate annuity under Jeevan shanti also vary with the age of the annuitant and the annuity option he/she chooses. In the deferred annuity option, the rate of annuity increases with the increase in deferment period.
“All these options are very safe,” said Rachit Chawla, Founder &CEO, Finway.
“LIC Jeevan Shanti allows one to invest one-time for a deferred period of up to 20 years. Senior citizens may consider investing some portion of their retirement corpus in this plan after accounting for taxes. While Jeevan Akshay is an immediate annuity plan, Jeevan Shanti has options of both deferred and immediate annuity. LIC Jeevan Shanti is not only popular among senior citizens, but also among private sector’s employees in their 30s and 40s and they don’t come under the highest tax slabs,” he added.
“Jeevan Shanti can also be purchased for the benefit of the dependent as a nominee or as a second annuitant under the immediate annuity option, especially beneficial if the dependent is physically handicapped. For a person having taxable income, Jeevan Shanti is a better option as he/she can defer additional tax liability through the deferred annuity option. Today, if one invests Rs 15 lakh in Jeevan Shanti plan, after 20 years, s/he could earn a monthly pension of Rs 26,000 or more. The minimum investment required in this plan is Rs 1.5 lakh. Jeevan Shanti also provides a life cover,” Chawla further said.