The Covid 19 situation has been a unique blow with different impact on different people and so there can be no one way to come out of the situation unscathed. And as it is to revive the economy which in the most positive of estimates for FY21 shall grow by just 1%, government has been doing all its but with banks however being reluctant to pass the same to end borrowers.
And while the key policy rate cut to the lowest 4% has been positive news for borrowers, how should those seeking fixed income stream by way of interest deal. Here is suggested a way out depending on your situation.
1. For senior citizens:
These individuals depend on steady income flow and with interest rate going down by a huge quantum on fixed deposits which were the most opted conservative instruments (Now 1-year FD with SBI after the latest rate cut fetch just 4.9% p.a.), investors can park some of their corpus into
a. Annuity: To ensure a steady flow of income all through their life. Here the annuity income is also taxable in the hands of the investors.
b. Rest of the corpus can be deployed in higher interest yielding instruments such as SCSS and PMVVY:
This annuity allocation and pay-out shall not be able to beat inflation, so you can even deploy your fortunes for better return in LIC's PMVVY that fetches currently a rate of return of 7.4%. Also, post office Senior Citizen Savings Scheme shall also be a good option considering the return but it comes with a lock-in.
PPF and Kisan Vikas Patra are other safe avenues with lock in that currently offer 7.1% and 6.9%, respectively. Post Office MIS scheme also 6.6% return per annum.
c. Fds at Small Finance Banks and New-Age Private Banks:
To tap more and more funds from public, new age private sector banks and most Small Finance Banks are offering a higher return on FD in comparison to scheduled commercial banks by as much as 150-200 bps. And these FDs are insured up to the extent of Rs. 5 lakh under Deposit Insurance Guarantee Scheme. So, one can spread their deposits of up to Rs. 5 lakh with each of the bank providing higher rates on FDs. But remember, senior citizens' allocation to such funds should be of a limited quantum.
|Banks||1-year||3 year||5 year tenure|
|Suryoday Small Finance Bank||7.25%||7.65%||8%|
|Utkarsh Small Finance Bank||7.75%||8%||7.75%|
|Jana Small Finance Bank||7.5%||8%||7.5%|
2. For those with liquidity concerns or who may need funds in the short term:
Basis the liquidity needs or more precisely investment tenure for which the investor shall be comfortable parking funds, one can consider the below options for better tax efficiency in comparison to typical bank Fds and return.
|Right investment type||Tenure|
|Short term and ultra-short term funds||Within 1 year|
|Banking and PSU debt funds||3 years|
|Dynamic bond funds||For more than 3 years|
|Bharat Bond ETF maturing in 5 years||5-year lock in|
But here you need to make sure that the securities need to be AAA rated of PSU and government institutions which may not default on your principal and interest payment.
Also, FDs with corporate can be opted by individuals who can take on a slight risk for a higher return. It is to be noted that these company deposits may get their ratings revised which is indicative of their safety at any time. So, by far senior citizens should largely avoid these company and NBFC deposits.
|Company deposit||Interest Rate (1 year)||3 year tenure||5 year tenure|
|Kerala Transport Development Finance Corporation||8%||8%||7.75%|
|Shriram Transport Finance||7.25%||7.86%||8.09%|
|Shriram City Union Finance||7.25%||7.86%||8.09%|
3. Investors In Debt
Nonetheless, in case you have EMIs to serve and have seen a salary cut amid the pandemic, you will be better off by becoming debt free at the earlier and hence you can postpone your investments for some probable future time.