WEALTH MANAGEMENT FOR SENIOR CITIZENS – PART- II

[Dr. Sanjiv Agarwal]

Having known the need for health insurance, let us now take a look at various investment options available in the market today- fixed-income options, equity-oriented schemes and other asset classes.

Senior Citizens Savings Scheme are offered through the post office and designat ed branches of nationalized banks and some private banks. The Senior Citizens Savings Scheme is considered among the best investment op tions for senior citizens. This investment should certainly find a place in the fixed-in come component of the portfolio. It scores in terms of high degree of safety, attractive rate of interest (9% per annum), regular income (quarterly interest payouts) and liquidity (premature withdrawal allowed after one year with a penalty). Moreover, working senior citizens can avail of tax ben efits on deposits underSection 80C. To be eligible, a person must be 60 years and above, or he should have completed 55 years and opted for a voluntary or any other special retirement scheme. The scheme has a tenure of five years, extendable by three years on maturity at the prevailing interest rate. The minimum amount of investment is Rs. 1000 while the maximum is Rs15 lakh.

However, interest earned under the scheme is taxable, and TDS (tax deduction at source) will be applicable if the interest earned in a year exceeds Rs. 10000. Of course, one can invest in spouse's name, if spouse is not earning, to ensure higher tax  free income.

National Savings Certificate is offered through the post office for a period of six years. The scheme provides an 8% rate of interest compounded half-yearly. In other words, Rs. 1000 invested in the scheme will become Rs. 1,601 in six years. The minimum amount of investment is Rs500 while there is no maximum limit. Interest gets accrued through the tenure of the scheme. Investments in the scheme are eligible for deduction under Section 80C. Interest earned is eligible under Section 80C.

Overall, the scheme offers a high level of safety and offers an attractive post-tax yield. However, as interest gets accrued, there is no facility for regular income during its six  year tenure. In addition, the lack of liquidity is a major drawback of the scheme, If you are willing to lock funds away for six years, then NSC should certainly find a place in the fixed-income component of portfolio. Although no premature encashment is allowed, certificates can be pledged as a security against a loan from banks and financial institutions.

Post Office Monthly Income Scheme is offered through the post office for a period of six years, the MIS provides an 8% rate of interest payable monthly. While interest is taxable and there are no tax benefits under Section 80C, the scheme makes up in other ways. The scheme is eligible for a bonus (5% of the deposit amount) on maturity of the scheme. The minimum amount of investment is Rs l,500. The maximum is Rs 4.5lakh in a single account and Rs9.0 lakh in a joint account. Regular income is earned on a monthly basis. No TDS is applicable. Premature encashment is allowed after one year with penal charges. Thus, the scheme offers high level of safety, regular monthly income, high liquidity and relatively attractive rates of return, and should be a good fit in the fixed-income component of portfolio.

Continuing with fixed income options, Kisan Vikas Patra is offered through the post office for a period of eight years and seven months, the scheme offers to double the money during the period. The rate of interest is 8% compounded annually. The minimum amount of investment is Rs 100 while there is no maximum limit. Interest gets accrued through the tenure of the scheme. Premature encashment is allowed after two years and six months, although at a discount. No TDS is applicable. The scheme, however, suffers from a liquidity perspective, although certificates can be pledged as a security against a loan from banks and financial institutions. In addition, as interest gets accrued, there is no facility for regular income during the tenure of the scheme. Moreover, the scheme does not compare favorably on the taxation front either.

Public Provident Fund is one of the most popular fixed-income options in the country .There are enough reasons for its ever-growing popularity. The rate of interest is 8% compounded annually. Interest gets accrued through the tenure of the scheme (15 years). Interest is fully tax-free. The minimum amount of investment is Rs500 while the maximum is Rs70,000 per year. Deposits qualify for tax benefits underSection 80C. Loan facility is available from the third year and first withdrawal is applicable after seven years. However, the long-term nature (15 years) of the PPF is a major negative for retirees and senior citizens who may not want their money locked away for so long.

Bank fixed deposits have been a staple for most investors in India, and senior citizens are no exception. As a senior citizen, one is entitled to a higher rate of interest of around 0.25-0.50% of the normal rate for a particular tenure. Currently, these deposits could yield senior citizens around 8% for a period up to three years, besides offering regular interest payouts and premature encashment facility (at no extra charge). However, interest earned is taxable, TDS is applicable, and only fixed deposits for five years and more provide tax benefits under Section 80C.

In case of Corporate fixed deposits, while investments in company fixed deposits can offer up to 12.0-12.5% over a three-year tenure, it is important to look for highly rated companies (like AAA), which typically offer about 8.0-9.5% per annum over a three-year period. Company fixed deposits usually offer regular interest payment options and allows premature encashment with penal charges. However, interest is taxable and TDS is applicable.

 

WEALTH MANAGEMENT FOR SENIOR CITIZENS - PART- I

 

WEALTH MANAGEMENT FOR SENIOR CITIZENS - PART- III