7 Ways to Invest Retirement Money in India
Every individual worries about their retirement planning. At the retirement stage all financial goals would have been achieved. Income has stopped and expenses have inflated. Retirement corpus is received from various sources like Provident Fund, Gratuity, PPF and insurance policies matured. But one question remains in mind is where to invest such retirement money? Are there any best ways to invest such retirement money in India? In this article we would focus on the top and safe ways to invest the retirement money in India.
Best Ways to Invest Retirement Money in India
#1 Senior Citizens Saving Scheme (SCSS)
Government has introduced this Senior Citizens Savings Scheme for retired employees. Almost all nationalized banks are offering this SCSS scheme. Below are the features of this scheme.
- Minimum investment: Rs 1,000
- Maximum investment: Rs 15 lakhs
- Current interest rate: 9.3% p.a.
- Age of entry: 60 years. However in case an individual retired by 55 years of age through voluntary retirement scheme (VRS), they can opt for it.
- Tenure: 5 years lock-in period which is extendable for another 3 years.
- Tax exemption: Eligible for tax deduction under 80C
You may like: Latest info on Post office saving schemes in India
# 2 Post office Monthly Income Scheme (POMIS)
As the name suggestions this is the monthly income scheme from post office of India. Post offices run by government of India, hence it would be a safe option to invest the retirement corpus. Below are the features of the scheme.
- Minimum investment: Rs 1,000
- Maximum investment: Rs 4.5 lakhs – Single account and Rs 9 lakhs for joint account
- Current interest rate: 8% p.a. and 5% payable on maturity. The effective yield would be 8.9% p.a.
- Tenure: 5 years
# 3 Post office Term Deposit (POTD)
This is similar to any other bank fixed deposit, but issued by Post office of India. Below are the features of this scheme.
- Minimum investment: Rs 200 and in multiples of Rs 200 thereon
- Maximum investment: No limit
- Tenure and interest
- 1 year-8.2%
- 2 year-8.3%
- 3 years-8.4%
- 5 years-8.5%
- Interest is compounded quarterly.
- Tax exemption: 5 years POTD is eligible for tax deduction under 80C
# 4 Annuity / Pension plans
The annuity /pension plans are offered by Life Insurance Corporation of India. Monthly payouts done by insurance company from the corpus invested. Generally the returns would be from 6.5% p.a. onwards. The annuity value depends on annuity investment, age and rate of interest. Age of entry: 40 years to 100 years. There are various types of annuity plans.
- Life time annuity payment, without return of purchase price. This ceases on death of annuitant.
- Life time annuity payment, with return of purchase price. The purchase price is paid to nominee on death of annuitant.
- Annuity guaranteed for specific number of years.
- Joint life annuity: Annuity is paid to spouse, in case of death of annuitant. It continues till spouse survives.
You may also like: Best Pension plans in India-2013
#5 Monthly Income plan in mutual funds
This is another good option to invest retirement corpus. MIP’s invest in debt and equity related instruments.
- The objective of MIP’s is to generate regular periodical returns through dividend payouts.
- MIP returns can be higher than bank fixed deposits as they invest up to 15% of their portfolio in equity.
- These are tax efficient investment options as they are treated like debt funds for long term capital gains taxation. The tax would be either 10% without indexation or 20% with indexation.
#6 Fixed Maturity Plans (FMP) in mutual funds
FMP’s are issued by mutual funds for short to medium term.
- These are close ended mutual fund schemes for the period from 6 months to 3 years.
- The returns would be higher compared to bank fixed deposits.
- They cannot be redeemed like any other mutual funds. However they are listed in stock exchanges and they can be purchased or sold.
- Even for FMP’s the long term capital gains taxation would be similar like debt mutual funds i.e. 10% without indexation or 20% with indexation. FMP’s are generally issued for 370 or 375 days so that an individual can get double indexation benefit. Read this article for more information on double indexation benefit.
#7 Bank fixed deposits
One of the good investment options for retirement corpus saving is, investment in bank fixed deposits.
- Bank FD’s interest rates are around 8% to 9% p.a pre-tax. Senior citizens would get another 0.5% more than these regular rates.
- This investment option is convenient to operate as majority of the seniors would already have a bank account and they are habituated to use bank account.
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Suresh
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my husband is going to retire in june,2014 and will get about 35 lakhs after retirment. What r the best option available to invest the money so that he can get monthy income to run the life. No liability/responsibility
Hello Mrs. Inderjit, There are several ways you can plan 1) Buy an annuity plan with LIC 2) Invest in MIP mutual funds where you can expect 6% to 8% and dividend are tax free (considering some risk) 3) Post office MIS Scheme offers monthly returns 4) Invest in SCSS schemes and finally 5) Bank FD’s which offers upto 9.50% interest rates.
Hi Suresh,
for SCSSS , i think there is nor tax benifit and interest is fully taxable wrt tax slab.
Shiv, This got added in 2007 and 80C rebate is available from 1-April-2007. Not sure how RBI website is not updated. I cross verified with Post office website and some of top blogs like Jagoinvestor. It is available. You can check with your bank before opening it. Regd interest taxable, yes this would be taxable based on individual tax slab.
Sir,
My ex employer hasreated deposited an amount of INR 1000000/_in SBI pension fund and I am getting a pension of INR 8900/_per month. Is it taxable
Thanks for your reply
R.Appathurai
Hi Appathurai, I hope it is not just a bank FD? If the income is “Pension’ it is taxable like any other salary income.
Hi Suresh,
This is a nice article for investment for the Retired. But, i have few doubts. Is the Senior Citizen Savings Scheme is Unit Linked (Market Based) or Secured?
Regarding Fixed Income MF, will they be fixing a Rate of interest and provide us the Rate of interest at the maturity and the capital without loss? If so, is it carries any allocation and maintenance charges?
I like to bring to your notice that the MIS is now 5 years and not 6 years anymore, 5% bonus is no more for those who invested after 2011 November.
Regards,
Vignesh. S
Vignesh, 1) Senior Citizens Saving Scheme is a Bank FD and secured (insured upto Rs 1L by bank deposit credit insurance). 2) Regd MIP MF’s, no the interest is not fixed. They aim to provide regular income, but income is not fixed. Sometimes they would not even pay anything to you for any particular month or period. MF’s charge from 1% to 3% as allocation charges, but the returns what I have been indicating is beyond that. Generally they provide higher returns comparing to bank FD. 3) Thanks for updating that MIS is now for 5 years. I have updated it now in the post.
Hi Suresh,
This is very good article, i would like to ask which is best plan for retirement in LIC, i've searched a lot on net read about LIC jeevan anand/jeevan tarang/jeevan saral but most ppl feedback was instead of LIC we should invest in PPF/ MF recurring etc, so please guide me for this i'm 29 years & i would like to invest for long term (for my retirement) & to be frank i dont know if i can pay regularly for MF/PPF for 30 years (coz many times i spend unwisely 🙂 ) thats why i thought to go for pension plan, please suggest which is the best LIC plan for long term.
Sumedh, Insurance cum investment products would provide limited returns around 5% to 6.5%. For PPF, you need to pay Rs 500 per year minimum and invest upto Rs 1 lakh but you would get 8%+ interest. Both are tax free. If you are looking for long term, invest in a combination of all these. Invest in diversified mutual funds thru SIP + Invest in PPF (where you get tax exemption too) + LIC moneyback/endowment policies like Jeevan Anand or Jeevan Tarang.