World Senior Citizens Day: Prior to determining investment avenues, it is imperative to accurately assess one’s financial requirements, including estimating the monthly budgetary needs.
Senior citizens’ investment: When considering the later stages of an individual’s life, the primary objective is to secure a steady income from a saved sum of money to support a pleasant lifestyle after retirement. Typically, seniors gravitate towards more conservative financial strategies in order to safeguard their funds. This demographic values investments that are easily accessible to address unforeseen circumstances.
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Regardless of age, making informed investment decisions necessitates careful planning and consideration. Prior to determining investment avenues, it is imperative to accurately assess one’s financial requirements, including estimating the monthly budgetary needs. One should start by estimating the monthly amount required, taking into consideration any additional income sources such as rental income, pension, or contributions from your children. Evaluate what percentage of your total investment you anticipate using annually.
If this percentage exceeds 4-6%, it may be wise to lower your expectations. For instance, if you possess a corpus of Rs 1 crore, the yearly withdrawals should not surpass Rs 6 lakhs. Attempting to withdraw more than 6% of your total investment in a year poses the risk of experiencing reduced income in the later years post-retirement.
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Business Today, on the occasion of World Senior Citizen Day today, gives you some of the popular investment options for senior citizens that have given secure and offer better returns.
Senior Citizens Savings Scheme (SCSS)
The Senior Citizen Savings Scheme (SCSS) was introduced by the Government of India in August of 2004 as a secure investment option. This scheme, backed by the central government, offers a risk-free savings opportunity. Targeted at individuals aged 60 and above, the SCSS provides the benefit of a guaranteed income throughout the investment period. The primary aim of the SCSS is to provide senior citizens with a regular income stream, aligning with their financial needs and objectives.
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Eligibility: The investment plan designed for senior citizens caters exclusively to individuals who are Indian nationals aged 60 years and older. This plan does not extend to Hindu Undivided Families (HUFs) or Non-Resident Indians (NRIs). However, exceptions are granted to individuals falling within the age range of 55-60 years who actively participate in the Voluntary Retirement Scheme (VRS) or Superannuation, as well as retired defense personnel aged between 50 and 60 years.
Rate of Interest: The current interest rate associated with the senior citizen scheme stands at 8.2%. Regular reviews of these interest rates occur every quarter, with the most recent evaluation having taken place on June 30, 2024. Please note that the updated rate exclusively pertains to new deposits initiated from the mentioned date and does not affect existing deposit accounts.
One should note any modifications in the rates of interest for the Senior Citizens Savings Scheme (SCSS) are applicable only to new investors enrolled within a specific quarter and do not influence the rates for existing investors.
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Investment Amount: The Senior Citizen Savings Scheme (SCSS) allows for a maximum investment amount of Rs. 30 Lakh and a minimum of Rs.1000 per individual. A senior couple can invest Rs 60 lakhs in the scheme separately. Individuals or joint account holders can invest a lump sum amount, but the total investment across all accounts in this scheme cannot exceed Rs 30 lakh.
Interest Payout: Interest payouts in the SCSS are distributed on a quarterly basis following your initial investment. These payouts are scheduled for the first days of April, July, October, and January, in accordance with your investment date. Unlike some other fixed-income options, investors do not have the opportunity to reinvest the interest earned from this scheme.
Tenure expansion: The maximum tenure of the Senior Citizen Saving Scheme is 5 years. After this initial period, you have the option to extend it for an additional 3 years. It is important to note that this extension can only be done once.
Early withdrawal expansion: The Senior Citizen Saving Scheme (SCSS) accounts can be closed prematurely at any desired time, with the condition that it must be at least one year after the account opening. Therefore, this scheme is not designed for short-term deposits.
In case of account closure before completing 2 years, a penalty of 1.5% of the deposited amount will be deducted.
If the closure happens after 2 years but before the maturity of 5 years, a penalty of 1% will be applied. For accounts that are extended for 3 years after the initial 5-year maturity, closing the account after the first year of extension does not incur any penalty. Additionally, the account is transferable to any location within India.
Tax: SCSS falls under the ETT category, meaning Exempt-Taxed-Taxed. This classification indicates that while the investment amount is exempt from taxation, the interest income is subject to tax based on your income tax slab. Furthermore, the maturity amount is also taxed under section 80C, a provision that is exclusively applicable under the Old Tax Regime.
Amount one can earn with Rs 30 lakh investment
Deposit amount: Rs 30 lakh
Rate of return: 8.2%
Tenure: 5 years
Total maturity amount: Rs 42,30,000
Total interest earned: Rs 12,30,000
Quarterly interest credit: 12,30,000/20= Rs 61,500
Post Office Monthly Income Scheme
The Post Office Monthly Income Scheme (POMS) is a government-backed savings scheme ideal for senior citizens seeking a secure investment option. With an annual return rate of 7.4 percent, payable monthly, this scheme serves as a reliable income source for retirees. By offering financial stability and capital protection during retirement, POMS provides seniors with peace of mind and support in their post-career years.
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The primary benefit of this scheme is capital protection since it is a government-backed scheme, ensuring the safety of your funds until maturity.
The tenure of the Post Office MIS is 5 years, signifying a lock-in period during which your investment is secured. Upon maturity, you have the option to withdraw the invested amount or reinvest it in the scheme. Considered a low-risk investment, Post Office MIS shields your capital from market risks, providing a secure and stable investment avenue.
One of the appealing features of POMIS is the affordable deposit amount, starting as low as Rs.1,000. Investors can choose to invest in multiples of this amount based on their financial capacity. It is important to note that the maximum limit for POMIS is Rs. 9 lakhs individually and Rs. 15 lakhs jointly. Moreover, POMIS offers guaranteed returns in the form of monthly interest payments. While these returns may not outpace inflation rates, they are typically higher compared to other fixed-income options such as Fixed Deposits (FDs). One should note that investment in POMS is not covered under Section 80C, but TDS is not applicable either.
Pradhan Mantri Vaya Vandana Yojana
The Pradhan Mantri Vaya Vandana Yojana, launched in 2017, is a retirement-cum-pension scheme dedicated to all senior citizens. Operated and managed by LIC (Life Insurance Corporation), this scheme offers an instant annuity plan. Upon investing a lump sum amount, investors receive a fixed sum regularly. Initially available from May 4, 2017, until March 31, 2020, this investment option was later extended for an additional 3 years, up to March 31, 2023.
Regarding the interest rate, at the scheme’s inception, senior citizens could benefit from an interest rate ranging between 8% to 8.3% per annum. The specific rate depended on the chosen payout period – monthly, quarterly, half-yearly, or yearly. However, the Union Budget of 2018-19 revised the interest rate to 7.4% for the year 2020-21, coinciding with the 3-year extension of the scheme.
Investment Amount: The Pradhan Mantri Vaya Vandana Yojana (PMVVY) requires a minimum initial investment of Rs.1.5 Lakh and allows for a maximum investment of Rs.15 Lakh. Interestingly, the maximum investment amount was originally capped at Rs.7.5 Lakh but was later raised after the first year of the scheme.
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Pension Amount: Under the PMVVY scheme, the pension amount is fixed regardless of the investor’s age. Additionally, investors can apply for a loan of up to 75% of their initial investment after completing 3 years in the scheme.
Tenure: The policy term for PMVVY is 10 years, meaning investors must commit to this period to receive their final pension and investment amount. Pension payouts can be received monthly, quarterly, half-yearly, or yearly, providing flexibility to investors based on their retirement financial strategies.
Early Withdrawal Provision: If you or your spouse are facing a critical or terminal illness, you have the option to foreclose your Pradhan Mantri Vaya Vandana Yojana (PMVVY) account. In such unfortunate circumstances, the surrender value of this senior citizen scheme will amount to 98% of your initial investment or purchase price.
Tax Implications: It’s essential to understand the tax implications associated with this investment avenue tailored for senior citizens. Similar to the Senior Citizens Savings Scheme, PMVVY falls under the ETT category. This classification signifies that no tax is levied on your investment principal. However, the interest earned is subject to taxation based on your income tax slab, and the maturity amount is also taxable. Notably, there is no TDS deduction from the interest earned.
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Fixed deposits
Senior citizens often consider fixed deposits (FDs) as a dependable source of income and capital security. This makes FDs a wise financial option, particularly for older investors aiming for stable returns. Fixed deposits have become increasingly popular among seniors due to their safety, predictable returns, and competitive interest rates designed for this demographic.
