The priority of investment for a senior citizen, who banks only on retirement corpus, is remarkably different from the investment priority of a working individual.
The priority of investment for a senior citizen, who banks only on retirement corpus, is remarkably different from the investment priority of a working individual having a regular source of income, who may take risks while investing.
The recent problems with some debt mutual fund (MF) schemes, especially the freezing of a number of debt schemes by leading Asset Manage Company (AMC) Franklin Templeton, have left investors jolted. Some other options that senior citizens having a lower risk tolerance capacity may explore are Pradhan Mantri Vaya Vandana Yojana (PMVVY), Public Provident Fund (PPF), Fixed Deposits (FDs), Post Office Monthly Income Scheme (MIS) and Senior Citizen Savings Scheme (SCSS).
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
PMVVY is a subsidised government scheme that provides an assured return of 7.4 per cent p.a. payable monthly (i.e. equivalent to 7.66 per cent p.a. annually) on the investments made by citizens aged 60 years and above as pension for surviving during the policy term of 10 years.
Investments may be done by single premium and mode of pension payment may be chosen as monthly, quarterly, half-yearly and yearly.
The minimum Sum Assured (SA) under PMVVY is Rs 1,56,658 for yearly pension of Rs 12,000, while maximum SA is Rs 15 lakh for monthly pension of Rs 9,250. The pension is taxable in the hands of pensioners.
A policy may be surrendered before maturity in special circumstances like critical / terminal illness of self or spouse. The Surrender Value payable in such cases shall be 98 per cent of purchase price.
Public Provident Fund (PPF)
PPF is also a government-backed scheme aimed at accumulating retirement corpus. It has tax benefits u/s 80C on the amount invested and the interest earned and maturity amount are also tax-free.
However, PPF doesn’t provide regular return on the amount invested. So, it may be used by senior citizens having regular pension to accumulate wealth and save tax.
The investment period of PPF is 15 years, which may be extended in a block of 5 years after maturity.
PPF, however, carries interest rate risk as the rate is revised every quarter. Currently, the interest rate offered on PPF is 7.1 per cent.
Fixed Deposit (FD)
FDs are one of the most popular investment choices in India due to perceived low risks, defined maturity value and fixed rate of interest during the investment period.
As FDs offer an interest rate marginally higher than the rate of inflation, the amount invested may lose purchasing power in the long term after paying tax on interest earned.
Post Office Monthly Income Scheme (MIS)
A government backed Post Office scheme, MIS provides regular monthly income against lump sum investment at a fixed interest for 5 years. Currently, the rate of interest on MIS is 6.6 per cent per annum payable monthly.
The minimum amount may be invested in MIS is Rs 1,000, while the maximum investment amount is Rs 4.5 lakh for single holders and Rs 9 lakh for joint holders.
The investment amount is eligible for tax benefits u/s 80C, but the interest is taxable.
Senior Citizen Savings Scheme (SCSS)
SCSS is also a government backed Post Office scheme meant for senior citizens with an age of 60 years or more. However, individuals who retired from service at the age of 55 years are also allowed to invest in SCSS even before the age of 60 years.
The maturity period of SCSS is 5 years and the current rate of interest is 7.4 per cent.
The minimum investment amount is Rs 1,000 and the maximum amount is Rs 15 lakh.
The investment amount is eligible for tax benefits u/s 80C, but interest is taxable. Unless Form 15H is submitted, tax is deducted at source (TDS), if the annual interest amount is over Rs 50,000.