There are numerous curated Investment options for senior citizens such as bank FDs and RDs, post office FDs and RDs, Senior Citizens’ Savings Scheme (SCSS), National Pension System (NPS), Life Insurance Premiums and mutual funds.
Some of these are low-risk fixed return options like bank and post office FDs, SCSS, etc. Others are relatively high risk but high return options like mutual funds. Ideally a combination of both options should be adopted in order to deliver regular income and wealth creation to a senior citizen.
Table of Content:
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- Investments for Growth
What is the Ideal Investment Portfolio for a Senior Citizen?
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The ideal portfolio for a senior citizen should deliver a balance between both income and growth. However, this also depends on the needs of every individual.
For example, senior citizens who are getting a pension from their respective employers may not need regular income. Their portfolios will be more oriented towards growth-delivering mutual funds.
Those getting an Employees Pension Scheme (EPS) pension are in a similar position, although the EPS pension may need to be supplemented with other income. Finally, those who have worked in the unorganized sector or in self-employment may not receive any pension at all. Such employees will need a regular income from their investments.
Investments for Monthly Income
These investments give regular income, including regular monthly income and can satisfy a senior citizens’ day-to-day expenses. These include:
1. Bank Fixed Deposits and Recurring Deposits
Senior citizens get higher interest rates than ordinary customers on bank fixed deposits and recurring deposits, typically 0.5% higher than normal rates. According to Section 80 TTB of the Income Tax Act 1961, the Interest income up to Rs 50,000 per annum is tax-free for senior citizens. This includes interest on bank FDs, bank RDs, post office FDs, post office RDs and savings account.
As compared to the income incurred by senior citizens, 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.
2. Post Office Fixed Deposits and Recurring Deposits
Post Office FDs and RDs work exactly like bank FDs and RDs with an added layer of safety. The money from post office FDs and RDs goes directly to the government and hence there is almost no chance of default.
On the other hand bank FDs/RDs are only protected up to Rs 5 lakh under the Deposit Insurance Credit Guarantee Corporation (DICGC). Post office deposits are also free from TDS deduction, unlike bank FDs/RDs. The Post Office also has a monthly income scheme called Post Office Monthly Income Scheme (POMIS) which provides monthly income.
Investments in post office FDs (5 year tenure) are tax deductible up to Rs 1.5 lakh however the interest on the same is taxable.
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3. Senior Citizens Savings Scheme
The Senior Citizens Savings Scheme (SCSS) is a government backed savings scheme. It is more secure than bank FDs since the SCSS money is held with the government. SCSS has a tenure of 5 years which can be extended by another 3 years. SCSS has an interest rate of 7.4%. Investments in SCSS are tax deductible up to Rs 1.5 lakh per annum but the interest on the same is taxable.
4. Post Office Monthly Income Scheme
Post Office Monthly Income Scheme (POMIS) is also one of the best government-backed saving scheme which allows the investors to save a specific amount every month. Subsequently, interest is added to this investment at the applicable rate and paid out to the depositor(s) on a monthly basis.
This scheme is especially formulated for the investors looking for a fixed monthly income generating option but are reluctant to take any market risks. Hence, it is more favourable for retired individuals or senior citizens who have landed into the no-more-paycheck zone. There is no capping on the no. of accounts which can be held by individuals but there is a limit on the maximum amount that can be cumulatively invested across all POMIS accounts.
- In case of sole operated account, maximum investment allowed in POMIS is Rs. 4.5 lakhs
- In case of joint holders (up to 3 joint holders), maximum of Rs.9 lakhs can be invested
Investments for Growth
The following investments provide an element of growth to the portfolios of senior citizens. This can help them keep up with inflation and also leave and inheritance for their families.
5. National Pension System
NPS has an age eligibility from 18 to 65 which means that senior citizens can also invest in it. Once an NPS account is opened, it can be extended all the way to the age of 70.
Investment in NPS is eligible for tax deduction up to Rs 1.5 lakh under Section 80C and up to an additional Rs 50,000 under Section 80CCD(1B). NPS money is invested in equity and debt funds as per the investor’s choice and generate returns. There is thus no fixed interest rate on NPS but the money in it can grow much faster through equity investment.
On maturity, 60% of the NPS corpus is tax free. The balance 40% of the NPS corpus must be used to buy an annuity (monthly pension).
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6. Insurance Premiums
Certain life insurance policies act as investment options alongside providing life cover. These include Unit Linked Insurance Plans (ULIPs) and Endowment Plans. However, investors should be cautious while investing in such policies and must pick the ones with the lowest charges.
Insurance charges include premium allocation charges, policy administration charges, fund management charges, mortality charges etc.
7. Mutual Funds
Mutual Funds can bring an element of growth and wealth creation in the portfolio of a senior citizens. 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.
Equity mutual funds held for longer than 1 year are taxed at just 10% for gains above Rs 1 lakh. If held for less than 1 year, they are taxed at 15%. Debt mutual funds are taxed at slab rate for gains made within 3 years of investment and at 20% with indexation for gains made after 3 years.
Indexation reduces the tax liability to account for inflation. A particular category of mutual funds (ELSS) funds are eligible for tax deduction under Section 80C for investments up to Rs 1.5 lakh per annum.
Here are five recommended mutual fund investment options for senior citizens:
| Fund Name | Fund Assets (Cr) | 1 Year Return | 3 Year Return | 5 Year Return |
| Aditya Birla SL Liquid Fund | Rs. 41,466 | 6.36% | 6.93% | 7.30% |
| SBI Magnum Ultra Short Duration Fund | Rs. 14,116 | 7.44% | 7.58% | 7.66% |
| Axis Short Term Fund | Rs. 5,398 | 10.13% | 8.29% | 8.71% |
| UTI Gilt Fund | Rs. 503 | 12.81% | 7.88% | 8.96% |
| Aditya Birla SL Balanced Advantage Fund | Rs. 2,630 | -14.98% | -1.05% | 4.59% |
52 Comments
in SCSS what is the meaning of “Investments in SCSS are tax deductible up to Rs 1.5 lakh per annum”
Hi!
Tax deductible investments are the ones that lower a person’s tax liability by lowering his taxable income. The statement implies that if you invest an amount up to Rs.1.5 lakh, that amount will be deducted from your taxable income; thereby reducing your liability to pay tax.
A mutual fund held for 10 years will never give a negative return. There may be many occassions over the ten year period where the returns will be negative but overall it will beat the returns of an FD hands down.
You can invest 15,00,000 in SCSS-Post Office Interest rate is 8.6% and interest is quarterly payable. You can invest another 15,00,000 in LIC Vayaovandana where interest rate is 8.0% and interest is payable monthly. Further you can invest 9,00,000 in MIS scheme of Post Office and interest rate is 7.6% – monthly payable. Regarding Banks Karnataka bank pays 0.3% more than other banks. In public sector banks SBI pays lowest interest. Any public sector bank other than SBI is OK.
MIS interest rate = 6.6%
Retiring in March 2021. Can a finance expert or Sr citizen suggest safe , tax free investment plan for Rs 1.0 Crore post retirement for regular income? or
Suggest safe investment plan for Rs 1.0 Cr with tax and without tax liability? Shall be Thankful
Some of the small finance banks and private sector banks are offering the highest FD interest slab rates of 7.5-9% p.a. You can open FDs with these banks with quarterly or monthly interest payout to generate regular income. These banks are also scheduled banks and cumulative investments of up to Rs 5 lakh in each bank are covered under the Deposit Insurance Program by DICGC, an RBI subsidiary, in case of bank failures. The interest income would be taxable as per your tax slab.
You can also invest in Senior Citizens Savings Scheme or tax-savings FDs for claiming tax deduction of up to Rs 1.5 lakh per financial year under Section 80C. However, they come with a lock-in period of 5 years and their interest income is taxable as per the tax slab.
You can invest in SCSS in either post office or any of the government banks like SBI, Bank of India etc. You must have an account in the PO/Bank you are opening SCSS for Quarterly interest rate to be deposited. For a Sr. Citizen, the max cap of SCSS investment is Rs 15Lakhs. At 8.6% interest, SCSS is a much safer and favourable investment as per my knowledge.
interest rate=7.4%
SCSS could be opened in Post Offices since this is a post office schemes. I think most of the large government banks such as SBI, Syndicate Bank etc. do open SCSS. Among private bank, ICICI also deals in that. The norms of the scheme remain the same irrespective of the bank. So you could open in any bank or post office as per your convenience.