Financial planners will tell you to plan early for retirement life but it’s never too late to start. While securing regular income after retirement is the primary goal, most people settle for risk-free avenues of investment.
While in service, people invest in various schemes to get the best return but post retirement, when they are loaded with the retirement corpus, they seek to park it in a risk-free place.
Though fixed deposits and post office monthly deposits remain the most preferred options across age groups, there are certain schemes exclusively available for senior citizens.
One of the best schemes for people above 60 years is the Senior Citizen Savings Scheme (SCSS). The scheme is backed by the government, pays an interest rate of 8.4 per cent and has one of the lowest maturity periods at five years. The scheme can be opened in post office, a number of public sector banks and one private sector bank — ICICI Bank. Another advantage of the scheme is that it qualifies for the benefit of Section 80C of the Income Tax Act, which means you can save taxes.
The maximum deposit under the scheme is Rs 15 lakh and it allows premature closure after one year on deduction of an amount equal to 1.5 per cent of the deposit and after two years, one per cent of the deposit. The only drawback of the scheme is that interest amount in excess of Rs 10,000 per year is taxed.
Another secure and risk-free area to park cash is the Pradhan Mantri Vaya Vandana Yojana operated by the Life Insurance Corporation of India. As per the insurance firm, the scheme will remain open till May 3, 2018. Senior citizens are guaranteed 8 per cent interest rate for 10 years under this scheme. The scheme also gives the added benefit of receiving the pension as the subscriber wants, be it monthly/quarterly/half-yearly/yearly — during the policy tenure of 10 years. At the end of the policy term of 10 years, the pensioner gets back the purchase price (amount invested to earn pension) along with final pension installment. The scheme also provides loan facility after completion of three policy years.
Experts say both the schemes are well suited for their risk-free nature but if the retirees are willing to take small risks in mutual funds, they can further increase their wealth. One such mutual fund is the debt mutual fund where the investment held over three years qualifies for long-term capital gains tax of 20 per cent with indexation benefit.
There is a buzz that the government is likely to qualify the debt mutual fund for tax deduction under Section 80C of the Income Tax Act in the upcoming Budget, a step that will make it more desirable. Currently, an Equity Linked Savings scheme (ELSS) is the only mutual fund scheme that qualifies for tax deductions of up to Rs 1.5 lakh. However, ELSS is considered riskier than the debt funds as the money is mostly invested in stocks, something retirees won’t like to opt for.