SENIOR CITIZENS – LIFE BEYOND FDs?

Mr. Iyer, when he retired 10 years ago had saved enough money to see him and his wife through the evening hours of their lives.

Like majority of the senior citizens, he invested all his money in Fixed Deposits (FDs). Everything was hunky dory and he did not crib much even when the interest income he earned was taxed. But the last one year has been tough. RBI has cut rates five times this year and with every MPC meeting coming up, he braces himself for some more cuts.

For Mr.Iyer and many such senior citizens who have invested their money in FDs, falling interest rate bodes ill as it means that for no fault of theirs, their income has been going down, making it tough to make ends meet. They do not live on the threshold of poverty but they most certainly have tightened their purse strings.

RBI is doing what it needs to do but what about the impact on senior citizens? Well, the moral of the story here is that they cannot, like Mr.Iyer put all eggs in one basket. FDs alone cannot be their source of income as it is inextricably linked to the current falling interest rate regime. Yes, when the time is for rising interest rates, the going was good but with those days not visible anywhere on the near horizon, they always need to have a Plan B; actually a basket of Plans B, C, D, E…

With many senior citizens asking us this question about where to park their funds, we did some digging and came up with a few schemes.

1: Senior citizen savings scheme (SCSS)

The best and one which wins hands down is the Senior citizen savings scheme (SCSS). It provides the highest safety as guaranteed by the Govt, offering quarterly interest income and tax saving too. For those above age of 60 years, this is an excellent scheme. Those opting for VRS or superannuation, between the age of 55 and 60 can also invest as long as the money is invested within a month of getting the benefits. Minimum age limit for retired defence personnel is 50 years.

• One can invest either Rs 15 lakh or the amount received as a retirement benefit, whichever is lower.
• Tenure of the scheme is five years, which can be further extended for three more years.
• The scheme currently offers 8.6% interest rate
• One can avail tax benefit of up to Rs 50,000 under section 80TTB of the Income Tax Act to save tax.
• Interest payable on an investment is locked on the date of the investment
  No option of cumulative interest
• Interest calculated on last day of every quarter – amount credited on first day of ensuing quarter, viz: 1st April, 1st July, 1st Oct and 1st Jan.

2: Post Office Time Deposits

Unlike FDs, where the insurance is only upto a maximum of Rs.1 lakh for both principal and interest earned, here, both the principal invested and interest earned are backed by sovereign guarantee.

• No Need to go to a PO to open the account; all public sector banks and private ones like ICICI Bank, Axis Bank, and HDFC Bank also open these POTDs.
• Four tenures – 1,2,3 and 5
• Interest rate for 1,2 and 3 years is 6.9%
• 5-year tenue gives 7.7%
• Interest payable quarterly
• Taxed like any FD; only 5-year has 80C benefit
• No age limit and not limited to senior citizens only.
• No differential rate for senior citizens.
• Interest rate is set by govt at the beginning of every quarter of the fiscal based on G-sec yields
   

3: RBI Savings Bond

This is a replacement for the erstwhile 8% Savings (Taxable) Bonds 2003. Offers highest safety as RBI is the guarantor. The interest rate is slightly lower than Post Office 5-year tenure Time Deposits. This is best for those who have exhausted the Post Office Monthly Income Scheme and SCSS while looking for options for income than what FDs offer.

• No maximum limit for investments
• Tenure of seven years
• Interest rate – 7.75% pa
• Non-cumulative bonds – interest will be paid on August 1 and February 1 each year
  Cumulative bonds - compounded with half yearly interest, payable on maturity along with the principal.
• Tax - interest earned on the bonds will be added to the bond holder's income and will then be taxed according their tax rate.
• Exempt from wealth-tax under the Wealth Tax Act, 1957.
• No nomination can be made in respect to bonds issued in the name of a minor.
• No loans against the deposit made in the bonds.
   

4: Post Office Monthly Income Scheme (POMIS)

Perfect for those looking for a monthly income.

• Not restricted to only seniors
• Tenure is 5 years
• Maximum investment amount is 4.5 lakh in a single account and Rs 9 lakh in a joint account
• Interest rate of 7.6%

5: Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Purely for the senior citizens only, its like a pension scheme.

• Guaranteed payout of pension at a specified rate for 10 years
• Open only till 31 March 2020.
• Minimum entry age for this scheme is 60 years, no maximum.
• Upper limit of investment is Rs 15 lakh
• No tax benefit
• Scheme can be purchased by payment of a lump sum purchase price.

Well, these are the top five most preferred schemes for senior citizens, an add-on to the FDs. That’s right, add-on. Do not banish FDs from your portfolio completely. Make it a mix of FDs and these schemes. A varied basket will protect you better, helping one live a good life.