Best Investment Plan for Senior Citizens – Recommended Investment Schemes
Investing in the retirement fund
For senior citizens, investing in their retirement funds in an appropriate manner is very important. They have to make sure the risk in the investment product is low, and returns are good enough to meet their regular expenses. They also need to ensure liquidity so that they can withdraw if the need arises and get income tax benefits on investment, etc. That is quite a list. No product will offer all these benefits. Hence, the need to diversify the retirement fund into multiple products. This article will focus on the best investment options for senior citizens to invest in their retirement funds.
Best investment plan for senior citizens
Some of the investment plans for senior citizens include the following:
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
- The Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a non-linked, non-participating pension scheme offered by the Government through the Life Insurance Corporation (LIC) of India. In this plan, a senior citizen (age 60 years and above) can invest a lumpsum amount and receive a regular pension. The pension payment chosen can be monthly, quarterly, half-yearly, or yearly. For the financial year 2022-23, the assured pension rate is 7.40% p.a., payable monthly. The investment tenure is ten years.
- On maturity, the amount invested and the last pension instalment will be paid to the pensioner. On the death of the pensioner, the amount invested will be returned to the beneficiary. The maximum amount that a senior citizen can invest is Rs. 15 lakhs. The PMVVY is one of the best monthly income schemes for senior citizens.
- Senior Citizens Savings Scheme (SCSS)
- The Senior Citizens Savings Scheme (SCSS) is a fixed deposit scheme for senior citizens. Currently (June 2022), the interest rate payable is 7.4% p.a. The interest amount is paid quarterly. The minimum deposit is Rs. 1,000, and the maximum deposit allowed is Rs. 15,00,000. Any senior citizen above 60 years can open an SCSS.
- A senior citizen can open the account individually or jointly. You can open an account with a post office or a bank. The amount invested qualifies for deduction from taxable income under Section 80C of the Income Tax Act. The interest earned is taxable. The account tenure is five years, and you can extend it by three years on maturity. The account can be closed prematurely with some penalty. The SCSS is one of the best investment schemes for senior citizens.
- National Savings Monthly Income Scheme (MIS)
- The MIS account pays the monthly interest rate. The current (June 2022) interest rate payable is 6.6% p.a., payable monthly. The minimum amount for opening an account is Rs. 1,000 and in multiple of Rs. 1,000. An individual can deposit a maximum of Rs. 4.5 lakhs in a single account and Rs. 9 lakhs in a joint account. The interest earned is taxable. It has to be added to the individual's overall income and taxed as per the income tax slab.
- The tenure of the account is five years. If the account holder dies before maturity, the account may be closed, and the account balance is paid to the nominee or legal heir/s. The MIS is one of the best monthly income plans for senior citizens.
Senior citizen fixed deposits
- Senior citizens can open a fixed deposit with any bank. Most banks pay additional interest of up to 0.5% to senior citizens than regular interest rates. The minimum fixed deposit amount varies from bank to bank and usually starts from Rs. 1,000. The tenure can range from a month to ten years. The depositor can opt to receive interest monthly, quarterly, half-yearly, or annually. The interest earned is taxable. Interest is subject to TDS deduction if Form 15H is not submitted.
- If an individual goes for a five-year tax saving fixed deposit, the amount qualifies for deduction from taxable income under Section 80C of the Income Tax Act. The maximum deduction allowed in a financial year is the amount invested or Rs. 1,50,000, whichever is lower.
- Tax-free bonds are fixed-income instruments that pay regular interest that is tax-free in the hands of the investor. The tax-free bonds are usually issued by Public Sector Undertakings (PSUs). As PSUs issue these bonds, they are considered low risk, and hence, senior citizens can consider investing in them. The tenure is usually in the range of 10 to 25 years. Even though the tenure is long, these bonds have liquidity as they are listed on the stock exchange and can be sold in the secondary market.
- The investment plan for senior citizens can include some allocation to mutual funds. Mutual funds are of various types, including debt funds, equity funds, and hybrid funds. Debt funds have relatively lower risk and hence may be considered for investment. If the investment time horizon is more than five years, you may consider a small allocation towards equity mutual funds.
Diversification of investment portfolio is the key
In the above article, we have discussed various investment products for senior citizens. Some investment products like PMVVY, SCSS, and MIS have maximum investment limits. Hence, diversification becomes all the more important. Senior citizen should diversify their investment portfolio to spread the risk among various investment products.