For retirees, making the optimum use of retirement corpus is important so that their tax liability is at bay and there is a regular stream of income.
Retirement is when one stops living for work and begins working at living. Since an individual gets several financial advantages upon crossing the age of 60 or 80, they should be aware of those advantages and also make the most of it.
With the retirement corpus in hand to keep tax liability at bay, one can invest that money in few different schemes available for senior citizens so that investments are diversified which reduces the risk and increases the return.
Here’s a look at some of the financial products that fits best for a senior citizen’s portfolio:
Fixed Deposits for Senior Citizens
A popular choice among retirees, fixed deposits turn out to be a reliable avenue for retirees giving fixed returns with the ease of operations. Senior citizens enjoy an interest rate of 0.25 per cent to 0.5 per cent higher than the regular rates including the advantage of providing flexibility in terms of tenure.
Senior citizens are also entitled to a tax exemption of up to Rs. 50,000 on interest income from investments in FDs and this privilege under Section 80 TTB is available only to individuals above the age of 60.
Peer to peer lending is fast becoming an attractive and reliable investment option for senior citizens. Few people know that it is regulated by RBI which ensures only stable and compliant companies can run P2P Lending platforms. It is an ideal investment option senior citizens as overall investment process and its monitoring is very simple. Also, returns come in the form of EMI every month to ensure continuous flow of liquidity to manage monthly expenses. By lending money to various borrowers of different risk categories, you can easily diversify your investment and make higher risk adjusted returns between 14-18%. Maximum investment limit set by RBI across all P2P Lending Platforms is Rs. 10 lakhs.
Pradhan Mantri Vaya Vandana Yojana
A government initiated scheme where senior citizens who are 60 years and above can avail benefits of it. This welfare plan provides an assured return of 8% p.a. payable monthly (equivalent to 8.30% p.a. effective) for 10 years. Pradhan Mantri Vaya Vandana Yojana the highest interest offering plan among all the annuity plans offered by different life insurance companies. The PMVVY scheme also allows for premature exit for treatment of any critical/terminal illness of self or spouse. On such premature exit, 98 per cent of the purchase price will be refunded.
Senior Citizens’ Saving Scheme
As the name suggests, the scheme is available only to senior citizens and early retirees.One can invest up to Rs. 15 lakhs under SCSS and more than one account can be opened under this scheme. Investing under this scheme provides all the advantages of tax exemptions under Section 80 of income tax, assured and impressive rate of interest of 8.3 per cent p.a. and also allows pre mature withdrawals.
National Savings Certificate (NSCs)
Issued by the Indian government, NSCs are used for small saving purposes and the investment is deductible under Section 80C of the IT Act. NSC certificates can be bought for as low as Rs 100 and gives and interest of 8.1%.
Even though there is no tax deducted at source and the invested amount is tax deductible under Section 80C, tax needs to be paid on the interest earned. Also, premature withdrawal of the amount is not permitted under this scheme.
For retirees, making the best use of retirement corpus is important so that their tax liability is at bay and there is a regular stream of income. One type of investment scheme will not work well for every individual as financial situations and investment objectives varies from one person to another.
Retirement is never considered as an end and an individual should invest its money judiciously and in accordance to the level of risks one is willing to take to enjoy their financial independence.
(By Raghavendra Pratap Singh, Co-Founder of i2ifunding)