Savings scheme

Seniors Savings Plan | Five investment plans for seniors with regular income

Five investment plans for seniors with regular income | Photo credit: BCCL

New Delhi: Due to the onslaught of the Covid-19 pandemic, central banks around the world have been pushing to cut interest rates to avoid liquidity pressures. While lower interest rates can be a tonic for a struggling economy, they can negatively impact seniors who depend on stable income.

Security of capital, steady growth in wealth and a regular monthly income are the hallmarks of a good retirement investment. For these reasons, term deposits (FD), the Senior Citizen Saving Scheme (SCSS), and Pradhan Mantri Vaya Vandana Yojana (PMVVY) were popular investment havens for people over 60.

Savings plans for seniors (SCSS): For seniors, SCSS is a good option as they offer an interest rate of 7.4% per annum. It is reviewed quarterly.

The maximum investment limit is Rs 15 lakh per person. Interest is payable quarterly and the amount is fully taxable. In addition, the tax withheld at source (TDS) will be applicable in the event that the amount of interest is greater than Rs 50,000 for the year.

Credit risk fund: The two options mentioned above are backed by a sovereign guarantee and, therefore, there is no risk of loss of capital. However, since the interest earned is fully taxable, the after-tax return may not be as attractive. Alternatively, there are mutual funds such as credit risk that invest in higher yielding debt securities that are generally lower than the highest rating. When investing in these funds, be aware of the credit risk (fall in the net asset value of the fund due to a default in repayment of the principal or interest of the company in which the fund has invested).

These funds generated a return of 8.12% over the past year. Gains after three years are considered long term and are taxed at 20% after indexation, which significantly reduces the tax burden.

RBI Variable Rate Bonds: These are bonds issued by the RBI and whose interest rate is linked to that of the National Savings Certificate (NSC) with an increase of 35 basis points (bps). A basis point is one hundredth of a percentage.

Interest on the bonds is payable semi-annually on January 1 and July 1 of each year. The interest rate for the first half of 2021 has been set at 7.15%. The interest rate for the following semester will be reassessed every six months.

Pradhan Mantri Vaya Vandana Yojana (PMVVY): This plan has been extended until March 31, 2023. Currently, the plan offers a guaranteed pension at 7.40% per annum payable monthly. However, the interest rate for this plan will be reset on April 1 of each year and, accordingly, the amount of the pension will change based on the new rate. The annual reset of the insured interest rate will be in line with the revised SCSS rate of return but up to a cap of 7.75%. Once this threshold is reached, a new evaluation of the interest rate will be carried out. The maximum investment allowed in this 10 year investment program is Rs 15 lakh. At the end of the 10-year occupancy period, the principal amount as well as the last installment of the annuity will be returned to the purchaser.

Bank term deposits (FD): Bank term deposits have always been the most popular investment plan for seniors. But in recent times, these schemes have lost their charm due to falling interest rates. Bank FDs offer the option of choosing the payment option you want: monthly, quarterly, semi-annually or annually. Currently, most major banks provide up to 6% interest on FDs to seniors for 5-10 years. However, some of the smaller finance banks and cooperative banks offer an interest rate greater than 7% on senior FDs.

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