There are five popular investment options for senior citizens that one may explore and diversify across them to keep returns, safety and liquidity under control.
In a falling interest rate scenario, investors looking for fixed income on their deposits are hit the most. Banks are offering a return of around 5.5 per cent across most tenure and at this time senior citizens and the retired have just survived the post office small savings interest rate scare.
The FM, however, reversed the decision taken on the lowering of the Small Savings rates and the rates for the April to June quarter will remain the same as that of the previous quarter – January to March 2021. However, the relief could be temporary as the RBI in its April 7 meet maintained the repo rate and took measures which led the G-sec yield fall in the view that rates may remain flat for some more time to come.
So, where should a retired investor put his hard-earned lifetime savings to fetch a regular income and also manage one’s household expenses?
There are five popular investment options for senior citizens that one may explore and diversify across them to keep liquidity, safety and returns under control.
1. Senior Citizen Saving Scheme (SCSS)
Interest rate: 7.4 per cent
Tenure: 5 years
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. Currently, (April to June, 2021) the interest rate on SCSS is 7.4 per cent per annum, payable quarterly.
2. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Interest rate: 7.4 per cent
Tenure: 10 years
Pradhan Mantri Vaya Vandana Yojana (PMVVY) has already been extended up to 31st March 2023. The extension of the PMVVY scheme will help senior citizens as the entry age in the scheme is 60 years. For the first financial year i.e. up to 31st March 2021, the Scheme was providing 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. The maximum amount of investment is capped at Rs 15 lakh.
On survival of the pensioner to the end of the policy term of 10 years, amount invested (Purchase price) along with final pension installment shall be payable.
3. Post Office Monthly Income Scheme (POMIS)
Interest rate: 6.6 per cent
Tenure: 5 years
The Post Office Monthly Income Scheme (POMIS) has a tenure of 5 years and once invested the interest rate continues to remain the same till maturity. Currently, for the quarter ending June 2021, the interest rate is 6.6 per cent per annum. One can invest a maximum of Rs 4.5 lakh in a single name while a maximum of Rs 9 lakh can be deposited in POMIS in a joint name.
4. Bank fixed deposits (FD)
Interest rate: Around 6 per cent
Payable: Monthly, quarterly, half-yearly or annual interest
Tenure: 7 days to 10 years
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 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. Such schemes have been extended till September 30, 2020.
5. Floating Rate Savings Bonds
Interest rate: 7.15 per cent
Tenure: 7 years
The Floating Rate Savings Bonds 2020 have a tenure of 7 years and the interest rate will keep varying during the tenure of the scheme. The coupon rate for the first coupon period, payable on January 1, 2021 was fixed at 7.15 per cent. The coupon/interest of the bond is reset half yearly on every July 1st and Jan 1of each year. 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.
In SCSS, the guaranteed pension is only for 5 years. SCSS can, however, be extended after maturity for 3 years but the prevailing rate of interest will apply. As interest rates are looking to go down further, PMVVY scores over SCSS in this context. After making a comparison between all investment schemes for senior citizens, rather than investing in any one, a senior citizen can consider investing in all of them based on individual need.
Better to diversify across these investment options and 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.