Senior citizens can invest their savings in various instruments that best match their financial goals and liquidity needs.
Fixed deposits (FDs) are time-tested investments with guaranteed returns that come without market risk and offer competitive interest rates, yet early withdrawal can incur penalties.
Senior Citizens Savings Scheme (SCSS)
The Senior Citizens Savings Scheme (SCSS) is a government-backed investment scheme offering guaranteed returns and tax advantages, making it one of the safest options to consider when saving for retirement and could save up to Rs 1.5 lakh annually, depending on your income tax slab.
Opening an account with either the post office or bank requires visiting their branch and providing KYC documents such as age proof, address proof and deposit amount check. You can choose to make lump sum or regular deposits in one currency or even multiple ones if desired.
To be eligible to invest in SCSS, an investor must be aged 60 or above and retired from service with either superannuation or voluntary retirement scheme (VRS). Individuals aged 55-60 receiving retirement welfare can also invest in SCSS; they should make the investment within one month after receiving their benefits.
Recurring deposit schemes offered by most Indian banks provide senior citizens with one of the safest investment options. You can invest small fixed amounts every month and earn interest. Recurring deposits also help develop savings habits among regular-income people and banks usually offer them at higher rates than non-senior customers.
Your interest payments can be distributed either on a monthly, quarterly, half-yearly, or yearly basis – whatever is best for you and the term of investment (up to 20 years). Furthermore, tax relief may apply when investing through the RD scheme.
This plan is available to anyone aged 60 or above, including NRIs. Should you decide to extend your RD after maturity has occurred, its interest rate on its original due date would apply instead in order to avoid penalizing your funds. Ultimately, maturity amounts consist of both your investment plus any interest accrued throughout its term.
Senior citizens looking for safe returns should consider tax-free bonds as an investment vehicle. Issued by government-backed institutions, tax-free bonds provide risk-free returns without taking on additional risk. Before investing, however, be sure to review the credit rating, liquidity, and yield to maturity return of each bond you consider investing in.
As an example, the NHPC Limited bond offers a guaranteed rate of 7.4 per cent on every Rs 1000 invested for 15 years, while SCSS boasts higher returns than other fixed deposit schemes with a maximum limit of Rs 15 lakh.
ELSS Funds offer great tax deductions and offer high returns while being eligible for deduction up to Rs 1.5 lakh. Furthermore, their low risk investments allow for easy diversification within your portfolio; you can invest via either systematic or lump sum installments.
Mutual funds provide senior citizens with a flexible investment option with higher returns than traditional assets such as bank deposits or gold. Managed by professional fund managers, these investments can be purchased as either lump sums or monthly installments through SIPs; providing protection against actual returns while beating inflation.
As senior citizens become retirment-age, their risk tolerance decreases significantly. Therefore, when investing in risky schemes such as mutual funds or hybrid mutual funds with minimal exposure to equities or tax-free bonds may provide the ideal option as they provide long-term stability with relatively lower risks.