Investment options for Senior Citizens

As per the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 a senior citizen means any person who is a citizen of India and has attained the age of 60 years and above. To continue with a luxurious life even in the retirement phase some of the investment options are explained below:
 

1. Senior Citizens Savings Scheme
To build a secure portfolio many senior citizens are opting this scheme. As the name suggests, the scheme is available only to senior citizens or early retirees. SCSS can be availed from a post office or a bank by anyone above 60. Currently, the interest rate in SCSS is 8.6 percent per annum, payable quarterly and fully taxable. The rates are set each quarter and linked to the G-sec rates with a spread of 100 basis points. Once invested, the rates remain fixed for the entire tenure. Currently, SCSS offers the highest post-tax returns among all comparable fixed income taxable products. The upper investment limit is Rs 15 lakh and one may open more than one account. The capital invested and the interest payout, which is assured, has a sovereign guarantee. Investment in SCSS is eligible for tax benefits under Section 80C and the scheme also allows premature withdrawals. 

2. Post office monthly income scheme
It is a five-year investment with a maximum cap of Rs 9 lakh under joint ownership and Rs 4.5 lakh under single ownership. The interest rate is set each quarter and is currently at 7.8 per cent per annum, payable monthly. The investment in this option doesn't qualify for any tax benefit and the interest is fully taxable. Also, one may provide the mandate to automatically transfer the interest from the savings account into a recurring deposit in the same post office. 

3. Immediate annuities
Retirees could also consider the immediate annuity schemes of life insurance companies. The pension or the annuity is currently around 5-6 per cent per annum and is entirely taxable. There is, however, no provision of return of capital to the investor, i.e., the corpus or the amount used to purchase annuity is non-returnable. The immediate annuity may not suit an investor who is capable of selecting and building his own portfolio. So it is better to diversify across different investments rather than invest in this scheme if you have the wherewithal to manage your own portfolio. This is also advisable as the returns offered on these immediate annuities are currently on the low side. 

4. Pradhan Mantri Vaya Vandana Yojana
PMVVY is a type of fixed deposit (called a pension due to marketing reasons) with LIC (Life Insurance Corporation). It has tenure of 10 years and an interest rate of 8%. The interest payable under PMVVY is fully taxable. There is no tax deduction on investment in PMVVY under Section 80C. Since PMVVY is held with LIC (Life Insurance Corporation), it is relatively a low risk investment.

5. Mutual Funds
Mutual Funds can bring an element of growth and wealth creation in the portfolio of a senior citizen. There are retirement plans offered by mutual funds however these plans are little more than marketing gimmicks. Instead senior citizens can achieve high investment returns by investing in mutual funds of a general nature. Among equity funds, large cap funds are relatively low risk while mid and small cap funds are high-risk high return. You can view our mutual fund recommendations here.

6. Bank Fixed Deposits
Senior citizens get higher interest rates than ordinary customers on bank fixed deposits and recurring deposits, typically 0.5% higher than normal rates. Interest income up to Rs 50,000 per annum is also tax-free for senior citizens under Section 80 TTB of the Income Tax Act, 1961. This includes interest on bank FDs, bank RDs, post office FDs, post office RDs and savings account. Ordinary customers only get tax-free interest up to Rs 10,000 per year under Section 80 TTA of the Income Tax Act, 1961 and that too only from savings accounts. Investments in bank FDs (5 year tenure) are tax deductible up to Rs 1.5 lakh but interest on the same is taxable.