60 + & Investing : Where should you put your money?

Turning 60 is an achievement in itself as one gets tagged into a new category of individuals - THE SENIOR CITIZENS. Recently we celebrated SENIOR CITIZENS” DAY on 21st August. Being a part of this category or group has its own privilege and respect. On a personal level senior citizens command authority and respect but the same command and respect.has to be shown while planning your own investments. Hence, it becomes important to know all the investment options available. Also one needs to know the risks each investments carry and the interest rates or rate of returns they provide. Once you fall into this category you have to be very cautious about your investment decisions as one mistake will make an unrepairable dent in corpus.

So, let’s understand all the options available.

GOVERNMENT BACKED PRODUCTS

1. Senior Citizen Savings Scheme ( SCSS)

   
   

   This is a government scheme specially for senior citizens, backed by the government with zero default risks.

The current interest rate is 8.2% p.a.

Interest Payout : paid quarterly on the first working day of April, July, October and January.

Investment Limits : Minimum deposits of Rs 1000 up to a maximum limit of Rs 30 lakh

Tenure : 5 years, which can be extended once for an additional 3 years.

Taxation : Investment qualify for deductions up to Rs 150,000 under section 80 C but the interest earned is fully taxable

2. POST OFFICE MONTHLY INCOME SCHEME ( PO MIS )

The Post office MIS offers an interest which is paid to investors as fixed monthly income. Backed completely by the government, it is safe, low risk, protects capital while ensuring regular monthly cash flow..

The current interest rate of PO MIS is 7.4% p.a.

Interest Payout - PO MIS pays monthly interest to depositors

Investment Limit - Minimum deposits of Rs 1000 with a maximum limit of Rs 9 lakh for single account and Rs 15 lakh for joint account.

Tenure : 5 years, early closure attracts penalty.

Taxation : Interest earned is fully taxable.

3. BONDS : RBI FLOATING RATE BONDS

For senior citizens, government backed bonds, RBI floating rate bonds are available.

The current interest rate is 8.05% p.a

Interest rate in RBI Floating rate bonds is dynamic & floating. It is pegged to the Nationa Saving Certificate ( NSC ) plus a fixed spread of + 0.35 % The rate is reset every six months on January 1st and July 1st.

Interest Payout Frequency : Paid out semi annually on January 1st and July 1st every year. There is no cumulative option available.

Investment Limits : Minimum investments is Rs 1000 and there is no maximum upper limit.

Tenure : The stanadar maturity is 7 years

Taxation : Interest earned is fully taxable according to your personal income tax slab.

FIXED INCOME & BANK PRODUCTS

1. Senior Citizens Fixed Deposits ( FDs)

   
   

In India, major financial Institutions provide 0.5% to 0.75% extra interest rates to senior citizens.

The current interest vary from bank to bank.

Public sector banks average interest rates range from 7.05% p.a. To 7.45% p.a Private sector banks average interest rates range from 7.10% p.a. To 8.00% p.a. Small finance banks average interest rates range from 7.60% p.a. To 8.60% p.a.

Interest Payout Frequency : One can op[t for monthly, quarterly, semi annually, annually or cumulative options whichever you feel comfortable.

Investment Limits : Minimum deposits start from Rs 5000 to Rs 10.000 and there is no maximum upper limit.

Tenure : Deposit starts from 7 days to maximum 10 years. There are many special days schemes offered by almost all financial institutions.

Taxation: Interest earned is fully taxable according to your personal tax slab rate.

2. Immediate Annuity Plans 

These are single premium pension products offered by life insurance companies. Ypou pay a lump sum amount ( known as purchase price ) and the insurer provides a guaranteed regular income for life starting immediately.Annuity Rates : While investing in immediate annuity, your interest rates depend heavily on the option you choose from the insurance company.

Option 1 : Life Annuity : Highest Payout - The insurer pays you the maximum possible monthly pension for as long as you live. However, upon your death, the company absorbs the corpus and nothing is refunded to your family.

Option 2 : Annuity with Return of purchase price - You receive a slightly lower monthly pension but upon your death your initial 100% corpus is returned to your nominee.

Option 3 : Joint life Annuity - The pension continues to your suppose at either 50% or 100% of the value if you pass away. If packaged with return of purchase price, the nominee receives the principal after both pass away.

Tenure : Unlike Bank FDs and government saving schemes there is no maturity date, the contract continues as long as you live.

Taxation : Annuity is fully taxable according to your personal income tax slab.

Market linked & Flexible options

1. Mutual Funds 

For senior citizens, mutual funds offer a crucial advantage that traditional schemes  lack,  capital growth to beat inflation and superior tax efficiency. One can diversify across Debt, Hybrid and Equity mutual funds. You can balance regular income with long term wealth capital appreciation.

Comprehensive Asset Class Blue Print - 

National pension Scheme ( NPS ) 

NPS allows senior citizens to join or maintain an account up to the age of 70 years with flexibility to keep the account active until they turn 75 years. It serves as an excellent tax saving and wealth compounding tool for senior citizens who want to actively manage their asset allocation between equity and debt.

Age Limit 60 - 70 Years

Exit Age Limit - 75 years

Asset Allocation : Investors get two choices of allocation: Auto choice and Active Choice. Auto choice has a conservative life cycle fund LC25 where equity is capped atr 25 % and the other is active choice where you can manually decide the investment split between equity and debt , but equity is capped at 50% for investors above 60 years of age.

Withdrawal & Exits : 

Standard Exits ( After 3 years ) 60% Tax free withdrawal and 40 % compulsory annuity

Premature exits ( Before 3 years ) 20 % Tax free and 80 % compulsory annuity

Small Corpus exemption : If your overall accumulated NPS corpus is Rs 5 lakh or less you do not need to buy any annuity. You can withdraw 100% tax free.

Taxation : Senior citizens who have post retirement income can cm,ail tax savings through NPS under the income tax act under section 80CCD(1) and 80 CCD (1B). On maturity 60% lumpsum withdrawal is tax free and the remaining 40% used for buying annuity is tax free at the time of transit. The subsequent monthly pension is taxed at slab rate.These are the major investment options available once you are 60+ . Once you are a senior citizen capital protection, interest rate or rate of return n and liquidity are the key parameters to be taken care of. So your portfolio has to be designed keeping these parameters in mind.One cannot invest only in a single product and be relaxed. Either it will be eaten by inflation or can fall prey to market corrections. Hence the need to diversify, this will provide you the best risk adjusted returns. If you don't understand the complexity of the products available, ensure you take help from personal finance professionals. These are certified individuals who will help you invest.

Happy Investing!