Senior citizens mostly prefer bank FDs and RDs, post office FDs and RDs, Senior Citizens' Savings Scheme (SCSS), National Pension System (NPS), Life Insurance Premiums, mutual funds and even other various curated investment pools too. However, bank/post office FDs, SCSS, etc are some of the low-risk fixed return options. In order to cherish regular income and wealth generation, a combination of both mutual funds and low-risk fixed return options can preferably be embraced. And considering the falling interest rates in the present situation, we are providing here a glance of 5 best investment options for senior citizens.
Senior Citizens Savings Scheme
The government-sponsored Senior Citizens Savings Scheme can be opted by senior citizens preferring higher returns than FDs without taking excessive investment risk. 7.4 per cent p.a. is currently provided by the SCSS. And individuals over the age of 60 can invest anywhere between Rs 1,000 and Rs 15 lakh in this post office scheme. Senior Citizens are allowed individually or jointly with their spouse to open an SCSS account. The SCSS has a term of 5 years and, after submitting Form B, can be extended to another block of three years. Most notably, investors can receive interest income against their SCSS investment on a quarterly basis and the interest rate is fixed throughout the maturity period of the investment.
That being said, during the extended period of 3 years, the quarterly interest rate will be applicable until the maturity period of 5 years. A penalty of 1.5% will be charged if withdrawn prior to 2 years of completion and a penalty of 1% if withdrawn after 2 years of completion in case of premature withdrawal. Moreover, under Section 80C of the I-T Act, the principal amount invested in SCSS qualifies for a tax deduction up to Rs 1.5 lakh per year, and the interest earned is taxed at the effective slab rate.
Amidst the downward trend in interest rates in recent times, fixed deposits appear to be a highly common investment vehicle for risk-averse investors such as the elderly, especially at a time when capital security has become as necessary as capital growth. In addition, senior citizens who, because of the associated risks, frequently do not wish to invest in market-linked securities can benefit from monthly, quarterly, semi-annual and annual interest payouts by depositing in a non-cumulative FD investment vehicle. However, most banks currently bid FD interest rates ranging from 3.25-6.25 per cent. But for senior citizens, depending on the bank and investment tenure there are still some FDs that are bidding higher rates of up to 7.75 per cent per annum such as IDFC Bank FD.
Now, after thorough research and risk analysis, senior citizen depositors can open an FD with a bank providing higher rates, and while doing so, they can cap their investments up to Rs 5 lakh per bank for enhanced security, as the DICGC covers that much. In addition, in order to generate an investment network, they should also split their corpus into multiple FDs of varying tenures so that they can thrive if the rates rise in the future, in short, it is called FD laddering strategy widely.
RBI Floating Rate Savings Bonds
Floating rate savings bonds provided by the RBI with a term of seven years can also be opted by senior citizens. One of the most enticing benefits of this investment pool is there is no upper limit requirement of age and investment amount. Through authorised banks, these bonds can be applied and purchased online and offline. In these bonds, any individual who is a citizen of India can invest. On a half-yearly basis, the interest rate is modified by RBI which makes it termed as floating rate bonds, and this makes it different if compared to SCSS and PMVVY, where the interest rate is fixed for the entire term. The interest rate is currently 0.35 per cent higher than the interest levied on the National Saving Certificates i.e. 7.15 per cent. Thus, any adjustment of NSC interest will change the interest payable on these bonds instantly. Individuals between 60 and 70 years of age are entitled to opt these bonds to welcome premature withdrawal after seventh-year facility taxable income. After five years, an individual who is between 70 and 80 can go for premature redemption at any time and anyone over 80 years can go for redemption after 4 years of bonds.
Pradhan Mantri Vaya Vandana Yojana
Pradhan Mantri Vaya Vandana Yojana (PMVVY), proposed by the LIC to fetch regular pension income, can also be considered by senior citizens. The long lock-in span of 10 years, however, is its only drawback. Since the interest rate remains fixed throughout the entire term, any rapid upward change in FD interest rates over the 10-year period can result in substantial returns for the investors. Aimed for senior citizens, the Pradhan Mantri Vaya Vandana Yojana (PMVVY) pension scheme has now been extended until 31 March 2023. "Government extends PMVVY until March 31, 2023, with an assured return of 7.40 per cent per annum for FY 2020-21," according to a tweet by Secretary, Department of Financial Services, Ministry of Finance, Annual rate of return is adjusted on April 1 of every new FY but all other terms and conditions continue to be the same for senior citizens.
Post Office Monthly Income Scheme
The Monthly Income Scheme of the Post Office (POMIS) is also among the best government-backed saving schemes that enable investors to cherish assured monthly income benefits every month. Eventually, interest is charged at the applicable rate and paid out on a monthly basis to the depositor(s). This strategy is primarily designed for investors searching for an option to earn guaranteed monthly income as the returns are not linked to the market if we compare it to mutual funds or stocks. It is also more beneficial for elderly people or senior citizens as there is no limitation on opening number of accounts, but the maximum amount that can be deposited cumulatively through all POMIS accounts is capped. For a single account with the maximum investment amount up to Rs 4.5 lakhs and joint holders (up to 3 joint holders) with the maximum investment cap of Rs.9 lakhs, this scheme is currently bidding an assured return of 6.6 % per annum payable monthly.