People who eventually come close to their retirement must find ways to earn an income to fulfill their needs and are often stuck with the question of where to invest that can yield good risk-free returns during retirement.
1. Fixed Deposits
A fixed deposit for senior citizens is a service provided by a bank wherein a sum of money is deposited in the bank for a specific time, and interest is gained upon the deposit.
A person must be an Indian citizen with an account in the bank of 60 years and above. Some banks also have the age criteria 55 years, as many people take early retirement. A non-resident of India can also open these fixed deposits through NRE or NRO account. These criteria vary from bank to bank.
A minimum deposit of Rs.10,000/- and there is no limit for maximum deposits, but the banks usually restrict it to 1 crore.
The period for these deposits could be short i.e.180 days, or long-term, i.e., 1, 3, or 5 years. It is an individual's decision how much time he wants the deposit to be in the bank. The deposit can be renewed after the expiry of the term of the warranty.
An amount deposited by a senior citizen is exempted from tax unless the interest earned on all the deposits is more than Rs.50,000/-. TDS will be cut if the interest earned on the deposit is more than Rs.50,000/-. If a deposit is locked in for a tenure of 5 years, a tax deduction up to 1.5 lakh can be availed.
2. Post office Monthly saving scheme (POMIS)
The ministry of finance introduces this scheme. The scheme offers capital protection and gives the senior citizen a fixed monthly interest.
This scheme is offered to every Indian citizen aged ten years and above, but senior citizens benefit with a much higher interest rate.
Currently, this scheme's rate of interest for senior citizens is 6.60% p.a. as of June 2022.
The minimum amount to invest in this scheme individually is Rs.1500/- and the Maximum is Rs. 4,50,000/-.
The tenure of this scheme is 5 years. After the expiry of 5 years, an individual can reinvest too.
The interest earned from this scheme is treated as an income and is taxable. After maturity of the amount, an interest has to be paid on the principal amount received.
3. Senior Citizen Saving Scheme (SCSS)
The Government of India introduced this scheme in August 2004 because people are more confident in investing in schemes introduced and backed by the Government.
The eligibility for a person to invest in this scheme is 60 years, and the person should be an Indian Citizen and the people who take VRS up to the age of 55 years, and no other person can invest in this scheme. The rate of interest varies every quarter and currently is 7.4%.
The minimum amount to be invested is Rs. 1000/- and the maximum limit to invest in this scheme is Rs. 15 lakh.
The maximum tenure for this scheme is 5 years and can be extended up to 3 years later.
The amount invested in this scheme is exempted from the tax, but the interest earned is taxed, and the maturity amount is also taxed according to an individual's tax slab.
4. Pradhan Mantri Vaya Vandana Yojana(PMVVY)
This scheme was introduced in 2017 and is managed and operated by LIC (Life Insurance Corporation). It's a retirement cum pension plan that provides a fixed sum of income once a lump sum investment is made.
A person of 60 years and above and an Indian Citizen can avail of this scheme.
The minimum purchase price of this scheme is Rs. 1.5 lakh, and it limits to Rs. 15 lakhs.
This policy's tenure is 10 years, and a person availing of this scheme must be prepared to wait 10 years for it to mature.
Here the investment amount is exempted from tax, but the interest that is earned and the maturity amount that is received are taxable.
5. Mutual Funds
These are investments that pool money from various investors with similar objectives and invest in equity or debt securities. As senior citizens wish to invest risk-free, they can invest in mutual funds in debt securities.
There are 3 types of mutual funds:
1. Equity Mutual Funds - invests in equity securities
2. Debt Mutual Funds - invest in debt securities
3. Hybrid Funds - invests in both equity as well as debt securities.
The amount invested could be in hundreds and lakhs depending upon the wish. It could be in installments, i.e., SIP and lump sum.
The tax is only charged on the amount withdrawn and not on any invested amount. Hence mutual funds are tax efficient too. A senior citizen must choose the plan according to their goal and must invest in mutual funds.
Any investment or savings done during any point of life is always helpful as it is never known to anybody when these investments or savings come into use. These investments are best for senior citizens since they benefit them during their sunset years. Senior citizens should not be dependent upon anyone financially as they can be independent and need not have to rely on anybody for an income.