9 Reliable Investment Options for Senior Citizens

• 18 April 2020 | 976 Views | By Abhinav Mishra

Every person plans for the second innings of their lives. Whether you are a self-employed person, salaried employee or a pensioner, during the later years of your life you need an uninterrupted inflow of funds to be able to provide for yourself and your family. With a wide variety of investment options available in the market today, the investment decision becomes complex – more so for senior citizens. 

Before we touch upon investment options available, it would be apt to highlight that all investment decisions are based on your financial strength and risk appetite. While some prefer to be on the lower end of the risk spectrum, some create hybrid plans, yet some others prefer to take higher risks. Through this article we aim to give you an overview of all these offerings but, by no means, do we intend to endorse any particular investment tool.

What are the best investment options for senior citizens?

Every person has a different investment objective. While some are looking for a monthly income, others are more inclined towards growth and wealth creation. To augment your awareness, we have curated a list of the most lucrative options available for senior citizens to plan their investments:

1. Senior Citizen Fixed Deposit (FD) and Recurring Deposit (RD) in Banks

The interest rates for senior citizens are higher than the regular public (typically by 0.5% approximately). Usually, one can invest in an FD for a minimum 7 days and maximum of 10 years. To be eligible for investing in FDs as a senior citizen, bank officials will verify your age from the documents provided by you. Based on your needs, you can choose a suitable investment tenure for maximum returns. 

FDs are free from market fluctuations making them a risk-free investment option. They also rank high in terms of liquidity i.e. you can withdraw funds at any time during the course of the investment. However, a penalty can be levied by the bank on premature withdrawal of FD.

Is FD interest taxable for Senior Citizens?

Another benefit of FDs, as per the IT Act 196, is that an interest of up to INR 50,000 per-annum (from FDs) is tax-free for senior citizens. Thus, FDs are the safest investment option that provide incredible growth opportunities while ensuring a risk-free return. There are two options to invest in a fixed deposit:

a). Cumulative Option – This option is suitable for senior citizens who intend to accumulate interest to be paid along with the principal amount at the end of maturity period. It helps you to build a corpus by saving a large amount of money.

b). Non-Cumulative Option – It is more suitable for senior citizen looking for a regular payment option. In this type of FD, the interest is paid out monthly/quarterly/semi-annually – depending on the investor’s choice.

Which bank is best for fixed deposit for senior citizens? Which bank gives highest interest rate for senior citizens?

Below is a list of Top 5 banks for senior citizens for FD investments:

2. Post Office (PO) Fixed Deposit (FD) and Recurring Deposit (RD), Post Office Monthly Income Scheme

The Indian Post also provides investment options for the citizens of India. The Post Office FDs and RDs work exactly like the bank FDs and RDs but with an added layer of security. Unlike banks, the money invested in post office schemes is directly submitted to the government thereby reducing the risk of default. Another benefit of PO FDs and RDs is that there is no TDS deduction on the maturity amount. 

Post Offices also offer a monthly payout investment option called the ‘Post Office Monthly Income Scheme’ (POMIS). This scheme allows for a maximum deposit of up to INR 4.5L in case of single ownership or INR 9L in case of joint ownership. These PO schemes and investment options are also free from market risks and uncertainties. Interest shall be payable to the account holder on completion of a month from the date of deposit. An interest rate of 6.6% is applicable from April 2020 onwards.

3. Senior Citizen Savings Scheme (SCSS) by the Indian Post

For senior citizens at or above the age of 60 years, SCSS is a popular investment scheme. An individual aged 55 years or more but less than 60 years who has retired or superannuation or Voluntary Retirement Scheme (VRS) can also avail this facility subject to the condition that the savings account is opened within a month of receiving retirement benefits and the invested amount should not exceed that of the retirement benefits availed. For retired personnel of Defence Services (excluding Civilian Defence) the age limit is further relaxed to 50 years. 

The maximum amount that can be deposited under this scheme cannot exceed INR 15L for a maximum of 5 years. The account can be extended further for 3 years within one year of maturity. This scheme offers an interest rate of 7.4% per annum which is payable quarterly (payable on 1st working day of April, July, October and January). This scheme also qualifies for tax exemption under Section 80C of the IT Act 1961. A TDS is deducted if the interest amount is than INR 50,000 per annum. The scheme also allows for premature withdrawal facility after one year by deducting some penalty. This account can be opened in single or joint ownership (with spouse). 

The interest earned from SCSS is a taxable income making it suitable for Senior citizens who are looking for additional income sources. This scheme ensures a regular quarterly income with a high rate of interest both for retired people and unemployed senior citizens alike.

4. Nation Pension Scheme (NPS)

The NPS is a government-sponsored pension scheme which is open to all sections of Indian citizens in the age group of 18 to 65 years. Senior Citizens can extend the tenure up to 70 years. This scheme allows subscribers to contribute periodically in a pension account during their work life. Under NPA, the government offers two types of accounts in NPS: Tier-I and Tier-II accounts. While Tier-I is a mandatory account, Tier-II account is voluntary. While the subscriber can withdraw the entire corpus from Tier-II account after retirement, there are restrictions on the amount that can be withdrawn from the Tier-I account. 

The money invested in an NPS account is managed by various PFRDA-registered Pension Fund Managers as per the investor’s choice. Thus, here is no fixed interest rate on NPS returns but the investment can grow much faster through equity investment.

On retirement, the subscriber has to mandatorily invest 40% of the corpus to buy an annuity for securing a regular income from an Annuity Service Provider on the panel of PFRDA. The annuity income is taxed as per the applicable tax slab. In terms of tax benefits, one can claim an additional deduction of up to INR 50,000 under Section 80CCD (1B), which is, in addition to INR 1.5L permitted under Section 80C.

5. Tax-free Bonds

These bonds are issued by the government-backed institutions to generate funding for their projects. They carry the highest safety ratings as compared to other listed securities. These bonds are a long-term investment (typically 10-20 years) so senior citizens should invest in them only if they will not require the funds for a long period of time. Although the liquidity is low for such bonds, a major advantage for the investor is that the interest earned is tax-free and there is no TDS applicable. On the downside, the interest is paid out annually hence may not support a retiree’s regular income requirement. This is a good investment option in terms of diversifying your portfolio. They are a good option for investment growth.

6. Mutual Funds

At the onset of non-earning period, it is important for retirees to invest a portion of their retirement funds in equity-backed products that deliver better inflation-adjusted return in the long run. Depending on risk appetite, senior citizens may allocate a certain percentage into equity mutual funds (MFs) across large-cap and balanced funds along with some monthly income plans (MIPs) to diversify their portfolio. Debt funds are also popular among senior citizens in the higher tax bracket as the income from debt funds gets taxed at 20% as compared to bank deposits which are fully taxable at 30.9%. A retiree can consider keeping a significant portion in debt funds given their easy liquidity.

With a mix of short terms funds and debt funds, a senior citizen can also opt for a systematic withdrawal plan of MFs. These plans are useful for creating a tax-efficient stream of regular income from their investments.

These are some of the investment tools available for Indian Senior Citizens who have already retired or are planning their retirement soon.

The idea is not to outlive retirement funds but to build portfolio with a mix of suitable products to the most of your retirement funds. Each option listed above provides varied degrees of income, liquidity, payout options, tax benefits and growth opportunities – all at different risk levels. The ideal objective for any senior citizen should be to strike a balance between sufficient monthly returns and growth options while keeping their risk to the minimum.

7. Non-convertible debentures (NCD)

Those issued by high rated companies can serve as a trustworthy long term source of interest based income. While investing in NCDs, the investor should be vary of credit rating, interest rates, tenor and sector in which the issuer is involved.

NCDs are non withdrawable before maturity, but can be traded in the secondary market.

8. Sovereign Gold Bonds

A relatively newer investment product, gold bonds tend to be lucrative as they:

(a) Act as a rare mode of investment in gold which reaps regular interest.

(b) Can be traded in the stock market after a certain duration.

Gold bonds are issued in multiple trenches, with varying issuing price and interest rates. This paper form of investment is relatively safer than physical gold. However, it is bound by liquidity issues and hence, cannot be classified under emergency redemption investments.

9. Senior Citizen Saving Scheme

This Government of India supported investment product is designed specifically for citizens above the age of -60- years. As a general exception, personnel from Defense Services are eligible to open account in this scheme when they reach -50- years. Features of the scheme are tabulated as follows: