Some senior citizen investment options providing regular income payments include Bank FD, PMVVY, POMIS, SCSS and Floating Rate Savings Bonds 2020.
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Senior citizens, especially those who are retired, need a regular income to meet their household expenses. Those who are 60 years or above have several investments to choose from, but not all of them provide regular interest payments on the deposits. Some senior citizen investment options providing regular income payments include bank fixed deposits, Pradhan Mantri Vaya Vandana Yojana (PMVVY), Post Office Monthly Income Scheme (POMIS), Senior Citizen Saving Scheme ( SCSS) and Floating Rate Savings Bonds 2020. One may also consider debt funds to keep money safe and get high tax-effective returns.
“Senior Citizen Savings Scheme (SCSS), Pradhan Mantri Vaya Vandana Yojana (PMVVY), Post Office MIS and Short to Medium Term Debt Funds are good investment options for senior citizens. It is always good to diversify. While there is a cap on investments in SCSS, PMVVY and Post Office MIS, senior citizens should avail the maximum benefits of these investment options. Debt Funds can be a good alternative to Fixed Deposits, funds that invest in debt instruments that mature in 1 to 3 years. Usually, debt funds in the Short Duration and Banking & PSU category are good ones to invest in,” says Harshad Chetanwala, MyWealthGrowth.
The capital invested in any of these investment options is safe as it is backed by the government guarantee. Other than the debt funds, some of them offer monthly returns while others may offer interest payouts on a quarterly and half-yearly basis.
Bank fixed deposits
Bank fixed deposits have always been a 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 6 per cent rate of interest. However, depending on the bank and tenure, most Small Finance Banks are offering an interest rate of above 7 per cent or even 8 per cent on some of their tenure. The senior citizens are offered an additional 0.5 per cent on the deposits by all banks.
In addition, some banks like SBI, ICICI Bank and HDFC Bank offer special deposits to senior citizens on deposits of 5-years and above. Under SBI Wecare Deposit’ for Senior Citizens, 0.3 per cent is additionally payable on 5 Years and above tenor. This scheme is till September 30, 2020.
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.5 lakh for all bank deposits, such as saving, fixed, current, recurring deposits under the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
‘Pradhan Mantri Vaya Vandana Yojana’ (PMVVY) has been extended up to 31st March 2023. The extension of PMVVY scheme will help senior citizens as the entry age in the scheme is 60 years. As per the terms and conditions under this plan, guaranteed rates of pension for policies sold during a year will be reviewed and decided at the beginning of each year by Ministry of Finance, Government of India. For the first financial year i.e. up to 31st March 2021, the Scheme will provide an assured pension of 7.40 per cent per annum payable monthly and thereafter to be reset every year. The annual reset of the assured rate of interest with effect from April 1st of the financial year in line with the revised rate of returns of Senior Citizens Saving Scheme (SCSS) up to a ceiling of 7.75 per cent with a fresh appraisal of the scheme on breach of this threshold at any point.
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, 2020) the interest rate on SCSS is 7.4 per cent per annum, payable quarterly.
Post Office Monthly Income Scheme (POMIS)
The Post Office Monthly Income Scheme (POMIS) has a tenure of 5 years. The rate of interest of all small savings schemes including POMIS is notified by the government from time to time on a quarterly basis. As the name suggests, the interest in POMIS is payable on a monthly basis, while the principal invested in paid back on maturity. Currently, for the quarter ending September, 2020, the interest rate is 6.6 per cent per annum. One can invest a maximum of Rs 4.5 lakh in single name while a maximum of Rs 9 lakh can be deposited in POMIS in joint name.
Floating Rate Savings Bonds 2020
The government has launched the Floating Rate Savings Bonds 2020 (Taxable) scheme from July 01, 2020. The Floating Rate Savings Bonds 2020 (FRSB Bonds) will have a tenure of 7 years and the interest rate will keep varying during the tenure of the scheme. Currently, the rate of interest has been set at 7.15 per cent per annum payable half-yearly. The interest on the bonds will be payable at half-yearly intervals on Jan 1st and July 1st every year. There is no option to pay interest on cumulative basis.
The coupon/interest of the bond would be reset half yearly starting with Jan 1st, 2021 and thereafter every July 1st and Jan 1st. The coupon rate for first coupon period, payable on January 1, 2021 is fixed at 7.15 per cent. The coupon rate will be linked/pegged with prevailing National Saving Certificate (NSC) rate with a spread of 35 basis points over the NSC interest rate.
Choosing the right investment
Better to diversify across these investment options but also keep liquidity into consideration. Look at your taxable income after factoring in interest income from various investment sources and try to keep it below the exemption limit. Make use of the 5-year tax saving bank FD to earn monthly income as well as to save tax. A retiree’s retirement portfolio should be such that it can take care of reinvestment risk as well.