One thing that keeps haunting everyone is what will happen when one will retire. The biggest change that will be introduced into their life is that one will no longer get a monthly salary and the only thing that one will get is a lump sum amount or pension. So to make post-retirement life smooth and hassle-free, one should smartly invest in different portfolios.
Thus on August 21, which is recognized as Senior Citizen Day, that celebrates the achievement of senior citizens in our country, we look at the avenues in which Senior Citizens can invest for a comfortable return.
The Senior Citizens Saving Scheme (SCSS) is a government-backed savings scheme. As the money is held with the government, the SCSS is more secure than bank fixed deposits.
SCSS has tenure of five years, which can be extended by another three years. The scheme has an interest rate of 8.7 per cent. Investments in SCSS are tax-deductible up to Rs 1.5 lakh per annum but the interest on the same is taxable.
SCSS is available for senior citizens above the age of 60 years. But the people between the age of 55 and 60 who have taken VRS or have superannuated, or retired defense personnel above the age of 50 can also avail of this scheme. Maximum investment allowed in SCSS is Rs. 15 lakh.
Senior citizens get higher interest than ordinary customers on bank fixed deposits (FDs) and recurring deposits (RDs). Typically it is 0.5 per cent higher than normal rates. According to Section 80 TTB of the Income Tax Act 1961, the interest income of up to Rs 50,000 per annum is tax-free for senior citizens. This includes interest on bank FDs, bank RDs, post office FDs, post office RDs and savings accounts.
As compared to the income earned by senior citizens, ordinary customers only get tax-free interest up to Rs 10,000 per year under Section 80 TTA of the Income Tax Act, 1961 and that too only from savings accounts. Investments in bank FDs (five-year tenure) are tax-deductible up to Rs 1.5 lakh but interest on the same is taxable.
This option is good for an investor who is looking for a monthly interest by investing a lump sum amount. An individual is allowed to invest a maximum up to Rs. 4.5 lakh and the maximum tenure is five years. No tax benefit is allowed under this scheme.
Post Office FDs and RDs work exactly like bank FDs and RDs with an added layer of safety. The money from post office FDs and RDs goes directly to the government and hence there is almost no chance of default.
Another good avenue to invest smartly is MIP mutual funds. These are debt-oriented plans that come up with a low-risk investment option with moderately high returns. While anyone can invest in MIPs, senior citizens can especially make good gains.
MIPs invest primarily in debt securities while 10-30 per cent of their portfolio is exposed to equity. This provides high safety of capital and high long-term returns from equity. MIP investments are subject to tax as per the rule applicable on debt funds for short or long-term capital gains.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension scheme announced by the Government of India exclusively for senior citizens aged 60 years and above which is available from May 4th, 2017 to March 31st, 2020.
Senior citizens can invest up to Rs 15 Lakh in PMVVY and get an assured return of 8 per cent p.a. Under this scheme, the investor gets a fixed pension income every month. If you invest Rs 15 lakh, then you would be eligible to get an income of Rs. 10,000 per month.