If you are a senior citizen following the old tax regime, tax saving is likely to be a part of your financial planning. Considering this, the ideal investment strategy for you would be to invest in instruments that not only generate higher returns but also help you save tax.
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When choosing such instruments, you must ensure that they align with your risk appetite and goals. It is also crucial to base your decision on your specific risk tolerance rather than a generalised notion of risk appetite.
Adhil Shetty, CEO of BankBazaar.com, said, “Your risk tolerance might surpass your risk appetite due to various factors like having sufficient life, health insurance coverage, being debt free, or having a guaranteed income stream after retirement. If you meet these criteria, your risk tolerance could be greater, allowing you to explore investment opportunities that offer potentially higher returns compared to fixed deposits (FDs).”
Let’s take a look at some such investments that you can consider parking your funds in.
Tax-saving FDs: Available for a five-year lock-in period, the interest accrued is fully taxable. These FDs feature a lock-in period of five years but provide tax deductions of up to Rs.1.5 lakh in a financial year.
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Although it is accessible to all, it provides significant tax benefits to senior citizens who fall under high-income brackets.
Senior Citizen Savings Scheme (SCSS): This is a secured, risk-free investment suitable for those 60 years and above. Offering an interest rate of 7.4%, the investment made in SCSS is eligible for deduction under Section 80C of the Income-Tax Act. SCSS offers a maximum limit of Rs 15 lakh, or the amount received as retirement benefits, whichever is less.
Public Provident Fund (PPF): This is a government-backed saving scheme that is low-risk and comes in a lock-in period of 15 years which can be extended in five-year blocks indefinitely. PPF deposits of up to Rs.1.5 lakh are tax-exempt. This investment falls in the EEE category, which means that the principal, interest earned, and the final maturity amount are all fully tax-exempt.
Tax-free bonds: This can be an ideal option for senior citizens who seek inflation-beating returns while also receiving regular income. “When choosing tax-free bonds, always pay attention to their ratings,” said Shetty.
Equity-linked savings schemes (ELSS) : A popular type of tax-saving investment, ELSS provide higher returns compared to traditional investments, while also allowing tax-deduction benefits under Section 80C up to Rs.1.5 lakh in a financial year. They do, however, have a lock-in period of 3 years and may be ideal for senior citizens who have some degree of risk tolerance.
