As it is Union Budget 2018 announced in respect of Senior citizens has been a lucrative bet for them with enhanced tax breaks and with the economic outlook changing, the senior citizens which earlier in order to secure higher returns even took a dig in equity assets can get a fair deal just by sticking to the conventional asset class that offer both a fixed return and are risk-free. More so, the provision holds for even the senior citizen class who want to earn regular income.
So, a risk-free portfolio accounting for the current economic climate can be build as though for both higher returns and regular income. Here are a few fixed income investment options for retired individuals.
Divert more funds to FDs:
As the inflation has been on a rising trend and has moved past the safe benchmark of RBI, the apex bank in its MPC meet has maintained the status quo in its last two meets. However, the environment is most likely to change as the bond yield is rising and with it to match up the yield of close to 7.5% on 10-year govt bond, bankers will be bound to increase the interest rates on Fds.
Time duration of FDs: Apart from the diversion of funds into FDs, the tenure is another important factor that should not be ignored as interest rates are likely to be moved higher in the coming months. It is at best to opt for a shorter term FDs providing a comparably higher return.
For low tax-bracket senior citizens tax deduction u/s TTB: Also, taking into account the tax advantage, the people under the lower income tax slab of 5-20% should ideally be choosing Fds over debt funds.
This has been advantageous now as the interest on these FDs can now be claimed for deduction upto Rs. 50000 through the introduction of new section of 80TTB. Also, there shall be no TDS deduction on the interest earnings from FDs.
In comparison to post-office and other cooperative banks, private or new-age banks are offering a fair deal on FDs in comparison for instance IDFC offers 7.5% return on a 366 day deposit.
This extended exemption limit both in respect of deduction as well as TDS exemption should well be lapped up first for maximizing tax-free income
Senior citizens saving schemes:
It is another safe bet though with a longer lock in and as in the current scenario offers 8.3% return. Nonetheless, after one complete year, investors are allowed pre-mature withdrawal with a penalty of 1.5%.
With a cap of an investment limit of Rs. 15 lakh by an investor, the investment option is a good bet for those with income upto Rs. 3 lakh on a yearly basis. Also these can be tapped for claiming tax deduction under section 80C for upto Rs. 3 lakhs.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
This also can be looked upon for better returns than FDs. It is a sure shot instrument to realize fixed regular pension and in the budget 2018, the call has been made to keep the scheme open till March 2020.
Depending on the mode of payment, the scheme fetches 8-8.3% return on an annual basis. Also, through the changes, the individual can earn a maximum of 10000 rupees as pension amount on a monthly basis. The interest upto Rs. 50000 on PMVVY is not allowed an exemption as per section 80TTB.
New RBI 7.75% Bonds:
The safe 7.75% bonds opened for investments are another good investment options with only the negative of a high lock-in period of 7 years. It is to be noted that both TDS as well as interest amount is taxable on these instruments.