Retired? Make informed decisions related to your investments

Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest, but not so fully that you run out of money –(Jonathan Clements).

Retirement can be great joy all through your life if you have sufficient money to spend. One of the greatest difficulties after retirement you may face is handling of lump-sum money you have received from PF, Gratuity, Leave encashment, commutation of pension etc. For the investment of retirement corpus, you will have to structure your investments in two ways.

The first step is that you will have to keep a certain amount of money for investment under monthly income  plans of the banks. The monthly income plans reflect in a way to give you regular income that comfortably covers your regular expenses, besides added expenses like medical expenses, traveling expenses, payment of taxes, spending on social engagements and so on.

Secondly, you have to think about reserving higher principal amount from retirement corpus for long term safe investments which generate a higher income. This is with a view to offshoot your higher expenses which will go up over the years due to inflation.

Let us look at safe investment avenue available to retirees.

Debt funds: A debt fund is a mutual fund scheme where the money is predominantly invested in fixed-income securities like government securities, debentures, corporate bonds, commercial papers, and other money-market instruments. The issuer of debt instruments pre-decides the interest rate you will receive as well as the maturity period. Hence, they are also known as ‘fixed-income’ securities. Individuals who are not willing to invest in a highly volatile equity market prefer to invest in debt funds as they are less volatile and provide a steady income. They are much more tax-efficient, compared to bank deposits. Debt mutual funds, including FMPs, carry indexation benefits and a lower rate of taxation if held for more than three years. The average return on a year’s investment is currently 10 to 12.5 %.

To learn more about various types of debt instruments click ‘Debt funds‘

Senior Citizen’s Savings Scheme (SCSS): Investment in Senior Citizen’s Savings Scheme is a good option for regular income. The scheme presently offers 7.10 percent (subject to change in every quarter, for the latest rate Click ‘Interest Rate’) assured return, and investment is eligible for income tax rebate u/s 80C. The maximum investment permitted under this scheme is Rs.30 lakh. Return on the investment is accounted for taxable income. The tenure of the SCSS deposit is 5 years, which can be extended by 3 years. Premature closure is permitted after one year of opening the account but with a penalty. Investment to be made in multiples of Rs.1000.Interest compounded on quarterly rest.  The minimum eligible age for investment is 60 years (55 years for those who have retired on superannuation or under a voluntary or special voluntary scheme). The retired personnel of Defence Services (excluding Civilian Defence Employees) will be eligible to invest irrespective of the age limits subject to the fulfillment of other specified conditions. SCSS is issued by the Post office and designated branches of Public sector banks and ICICI Bank. For more information click SCSS details

Senior Citizen Pension Scheme (PMVVY):

Pursuant to Finance Ministry’s modified PM Vaya Vandana Yojana (PMVVY) pension scheme for senior citizens, Life Insurance Corporation of India (LIC) has launched the non-linked, non-participating, pension plan subsidized by the Centre. The scheme will provide an assured rate of return of 7.40% per annum. This plan will be available for sale commencing from Tuesday for three financial years i.e. Open from May 26, 2020, up till March 31, 2023, with an assured interest rate of 7.40% p.a. for FY 2020-21. For policies sold during the next two financial years (i.e.2021-22 & 2022-23), the applicable assured rate of interest will be reviewed and decided at the beginning of each financial year by the government. LIC of India has been mandated to operate the scheme. According to a statement issued by LIC of India, the scheme can be purchased offline as well as online from the LIC website. For details read ‘LIC launches ‘Pradhan Mantri Vaya Vandana Yojana (Modified- 2020) Scheme‘..

Bank Deposits: Banks accept special fixed deposits with interest payable at regular intervals (monthly/ quarterly) as per customer’s requirements. The interest rate is the same as applicable to prevailing fixed deposits. You can think about investing in bank deposits under monthly/quarterly income schemes to meet your regular expenses. In India, all the banks offer interest of around 5.10 -7.00% +0.50% interest to the senior citizen over their card rates. You must know that interest rates offered on fixed deposits by banks are not uniform. To know the details click wiki-deposits

To compare the latest rate of interest offered by various banks click deposit rates

Tax Saver Fixed Deposits issued by Banks: An individual or HUF can invest in Tax saver fixed deposits of banks, not exceeding the aggregate limit of Rs.150000.00 u/s 80 (C) of IT in a financial year is eligible for tax relief. The ‘deposit’ can be opened in the single name or joint names of an adult with a minor or in the joint names of two adults, payable to either or the survivor.  The Joint account cannot be opened for more than two people. In the case of joint accounts, only the first-named person in the ‘Tax Saver Deposit’ can claim the tax rebate. Interest offered to these deposits is almost the same (6 to 7%) applicable for fixed deposits for a period of 5 years. For more details click Tax Saver Deposits

ELSS (Equity-Linked Savings Scheme): 

Equity-Linked Savings Scheme (ELSS) funds are currently considered top ranking tax-saving instruments due to the excellent returns they have generated in the past couple of years.

ELSS is an open-ended diversified equity fund offered by mutual funds. In this scheme, the investor’s money is chiefly invested in the portfolio of equity shares. The investment in the scheme offers you income tax rebate u/s 80 (C) of IT act up to the maximum limit of Rs. 1.50 lakh in a financial year.

Caution: If you wish to invest in ELSS, you must remember that the money deposited by you in the scheme is reinvested by funds manager in equity-related investments. Such investments are exposed to market risk. Even a fund which is showing very good performance at present may end with disappointing returns at a future date. Investors who have an appetite for risk could consider the option of investing in ELSS.

Axis long term equity fund, Birla Sunlife relief 96, DSPBR tax saver fund, Franklin India Taxshield Funds were some of the last year’s best performers. The returns from individual funds will be varied depending upon different portfolios held in each fund.

In the recent past, investment in ELSS has given very good returns to the investors even in the bearish market (18.5% average annualized return for 3 years, 17.50% in the past 5 years).

TAX rule (EEE):  Investment is eligible for tax exemption, Return is eligible for tax exemption and Redemption

Systematic Withdrawal Plan (SWP): If you are coming under a higher tax bracket, you can think of investing in short-term debt funds to avoid a higher rate of tax. The Systematic Withdrawal Plan (SWP) of mutual funds is just the opposite of SIP. It is a short-term debt fund where Mutual funds provide monthly income plans to the investor with a provision to either increase or decrease their monthly withdrawal or change the frequency of withdrawal from monthly to quarterly. The payout can be made from capital appreciation and principal. If capital appreciation of the investment is less than the withdrawal amount then the principal amount invested by you may erode. Investors are liable to pay capital gain tax (short-term/long-term) on their SWP investment.

PPF scheme 2019:

TAX rule (EEE):  Investment in PPF is eligible for tax exemption u/s 80C of the IT Act (under the old regime). Income is exempt from tax, and Redemption proceeds are not added to the tax. New rules for PPF accounts come into effect with several changes. Under the new rules, the amount in the PPF account will not be liable to attachment under any order or decree of any court in respect of any debt or liability incurred by the account holder.
Deposit rule: As per new PPF deposit rules; an account holder can make deposits in multiples of ₹50 any number of times in a financial year, with a maximum of a combined deposit of ₹1.5 lakh a financial year. Earlier, a minimum amount of Rs.500 and a maximum of 12 deposits in a financial year were permitted in a period of 1 year. As per the earlier rule, not more than one subscription can be accepted in a month, now that condition is removed, the account holder can remit any number of times in a month.
Continuation of PPF account after maturity:  PPF account holders have the option of extending their accounts after the 15-year tenure with or without the further subscription, for any period in a block of five years. Currently return on the investment is 7.10% (The rate is subject to revision every quarter, for the latest rate Click ‘Interest Rate‘). The balance in the account will continue to earn interest at the normal rate as admissible on the PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year. If you continue the account after 15 years, with a continued deposit, withdrawal up to 60 percent of the balance at the beginning of each extended period (block of five years) is permitted. To know more click on PPF

National Savings Certificate: NSCs are one of the safest tax-saving investments available to investors with assured returns and tax benefits. Investments of Rs.1.50 lakh in the 5 years NSC (NSC VIII issue) qualify for Deduction Section 80C of the Income Tax Act. However, there is no maximum limit for investment. No Tax deduction at source. Hence, the NSC holders who may not have a taxable income need not have to file their tax returns to get back the TDS. Redemption proceeds are not added to the taxable income. National Saving Certificates (NSCs) are issued at all Post offices in India. The interest on NSC is linked to the bond yield that guarantees the returns on investments in line with the prevailing market rates.  However, there is some bad news to investors that the interest in NSCs is calculated on annual rest which will actually reduce the quantum of interest payable on money invested compared to the earlier system. Further, with effect from April 2016, the interest rate on small savings schemes including NSCs notified on a quarterly basis instead of the earlier system of announcing every year. The scheme presently offers 6.80% (subject to change in every quarter, for the latest rate Click ‘Interest Rate’)

The small savings schemes basket comprises 12 instruments including the National Saving Certificate (NSC), Public Provident Fund (PPF), Kisan Vikas Patra (KVP), and Sukanya Samridihi Scheme. The government resets the interest rate at the beginning of every quarter. For the latest  rates click Interest rates on small savings schemes

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