7 Investment Options for Senior Citizens – Risk Free, Low Risk and Moderate Risk

Investment Options for Senior Citizens – Risk Free, Low Risk and Moderate RiskReview of 7 Investment Options for Senior Citizens

There are several investment options for Senior Citizens. However, they should choose an option which as at minimal risk and the one which can provide higher returns. Senior Citizens always wanted to pick an investment option that beats inflation so that their retirement corpus would not get eroded quickly. Which are the risk free investment options for Senior Citizens? Which options can be opted with minimum risk? Are there any good investment options for Senior Citizens by taking moderate risk?

How Senior Citizens should pick right investment option?

Here are few ways where Sr. citizens can choose a best investment plan suitable to them.

1) Investment option that has minimal risk or zero risk

2) Plan that provides regular income

3) Plan that can beat inflation

4) Investment option that can provide regular income + grow the principal (if possible)

Instead of choosing one investment option, Senior Citizens, can pick-up multiple options so that they can average out the returns which can beat inflation (considering inflation between 5.5% to 6%).

7 Investment Options for Senior Citizens – Features and Benefits

Let me split this into various buckets so that Sr. Citizens can pick suitable investment options based on their choice.

A) Risk Free Investment Plans for Senior Citizens

This includes Senior Citizen Saving Scheme (SCSS), Annuity Pension Schemes and Pradhan Mantri Vaya Vandhana Yojana (PMVVY).

B) Low Risk Investment Options for Senior Citizens

This set of investment options has minimum risk (but not risk free). This includes Bank Fixed Deposits and Ultra Short Term Debt Mutual Funds.

C) Moderate Risk Investment Options for Senior Citizens

This set of investment options has moderate risk. I would classify this into Two Bucket Strategy for regular income and Floating Rate Savings Bonds.

One can argue about National Pension Scheme (NPS) where one can invest beyond 60 years. Since its investment option, but one need to take annuity option to get regular payouts, we would exclude this from our discussion here.

7 Investment Plans for Senior Citizens – Features and Benefits

Now let me provide features, benefits, interest rate or returns, taxation about these schemes.

A) Risk Free Investment Plans for Senior Citizens

1) Senior Citizen Saving Scheme (SCSS)

Here are the features of SCSS.

Any individual who are 60 years and above can open SCSS account. In case of VRS or Superannuation, the eligibility is 55-60 years. In case of retired defense personnel, the eligibility is 50 years.

SCSS is government scheme i.e. it has sovereign guarantee and 100% risk free.

It has a tenure of 5 years which can be extended for 3 years, provided such extension is done within 1 year after the maturity period.

Current SCSS interest rate is 7.4%. However it would be reviewed every quarter and might get changed. One can lock this now before June, 2021, as the interest rate might fall in 2nd quarter of 2021.

SCSS interest payout would be quarterly which would be first day of April, July, October and January.

NRIs cannot invest in this scheme.

One can open SCSS at large banks or at post office. I would recommend doing this through banks as it would be little easier in terms of withdrawing, transferring to your SB account or for making any bill payments.

One can open this as individual account or joint account.

Minimum investment is Rs 1,000 and maximum investment amount in SCSS is Rs 15 Lakhs.

Amount invested SCSS qualifies for income tax benefit u/s 80c upto Rs 1.5 Lakhs in financial year.

Premature withdrawal can be done. However there is penalty of 1.5% of investment if withdrawn within 2 years or 1% if withdrawn after 2 years, but before maturity.

Interest received under SCSS is taxable as per income tax slab applicable to the person. In case the interest received is beyond Rs 50,000 during fiscal, necessary TDS would be deducted.

SCSS is one of the best risk free investment plan for Senior Citizens.

2) Pradhan Mantri Vaya Vandhana Yojana (PMVVY)

Any individual who are above 60 years of age can open PMVVY account.

PMVVY is also government scheme i.e. it has sovereign guarantee and 100% risk free.

PMVVY tenure is 10 years.

Current PMVVY interest rate is 7.4%.

Interest is paid monthly, quarterly, half yearly or yearly.

NRIs cannot invest in this scheme.

PMVVY needs to be opened with LIC who is managing this scheme.

Minimum investment is Rs 1.56 Lakhs and maximum investment amount in is Rs 15 Lakhs.

Amount invested qualifies for income tax benefit u/s 80c upto Rs 1.5 Lakhs in financial year.

The scheme allows premature exit during the policy term under exceptional circumstances like the Pensioner requiring money for the treatment of any critical/terminal illness of self or spouse. The Surrender Value payable in such cases shall be 98% of the Purchase Price.

Interest received under PMVVY is taxable as per income tax slab applicable to the person.

PMVVY is one of the Safe Investment Options for Sr. Citizens who are looking for regular income.

3) Annuity Pension Plans

There are several immediate annuity pension schemes offered by LIC as well as by private life insurance companies.

The returns would range between 5% to 6%, however these are guaranteed till the end of the tenure.

If we take LIC Jeevan Akshay VII Pension plan, this provides immediate pension. Under Plan A, it provides Rs 81,000 per annum pension for an investment of Rs 10 Lakhs i.e. 8.1% for life long for a 60 years individual. One should note that while pension payout is high, there is no return of purchase price.

Pension Income is taxable as per income tax slab applicable to the person.

B) Low Risk Investment Options for Senior Citizens

I am calling this set of investment options as low risk.

4) Bank Fixed Deposits

Bank FDs are simple to open and faster to close.

Bank FDs offer interest rates ranging between 6% to 7.5% for Senior Citizens.

Majority of the banks offer quarterly interest payout (along with half yearly or yearly or interest payout on maturity) while some offer even monthly payouts.

One can open bank FDs for 7 days to 10 years. Banks generally do not offer FDs beyond 10 years.

NRIs can invest in FD schemes through NRE accounts.

There is no maximum amount in FDs. However many banks offer lower interest rates beyond Rs 2 Crore investment.

If a bank FD is opened for 5+ years, it qualifies for income tax benefit u/s 80c upto Rs 1.5 Lakhs in financial year.

Majority of the banks offer premature withdrawals, however one would get lower interest rate.

Interest received on bank FDs are taxable as per income tax slab applicable to the person.

The risk what I would call is “beyond Rs 5 Lakhs investment”. What happens if the bank collapse. One would get only up to Rs 5 Lakhs under deposit insurance. I would recommend depositing Rs 5 Lakhs in each bank. If you want to invest 20 Lakhs, go ahead and invest in 4 different banks (it is different banks and not different branches of same bank)

Bank FDs are one of the low risk investment options for Senior Citizens who are looking for regular payout.

5) Ultra Short Term Debt Mutual Funds

Generally Senior Citizens face medical emergencies. If they have a good health insurance plan, it might cover hospitalization expenses to some extent. However, if they want to invest their emergency money or money that might need for short term, they can go for ultra short term debt mutual funds.

Ultra Short Term Debt Funds are best alternative to bank FDs.

These debt funds can provide 6% to 7% annualized returns though not guaranteed.

The returns from such funds are classified as short term capital gains and long term capital gains and necessary income tax needs to be paid.

The risk element I would call under ultra short term funds is that returns are not guaranteed. Beyond this, there is very low risk of loosing the capital.

C) Moderate Risk Investment Options for Senior Citizens

This section of investment options for senior citizens have some element of risk. Hence this section should be read carefully before opting these investment options.

6) Floating Rate Savings (Taxable) Bonds 2021

Here are the features of Floating Rate Savings Bonds 2021.

These saving bonds can be purchased by any individuals or HUFs. NRIs are not eligible to purchase.

These savings bonds rae offered by government i.e. it has sovereign guarantee and 100% risk free.

Tenure of these bonds are 7 years.

Current Floating Rate Savings bonds 2021 interest rate is 7.15%. However interest rate would be reset every 6 months.

Interest payout would be done every 6 months.

One can purchase floating rate savings bonds from any bank.

Minimum investment is Rs 1,000. There is no maximum limit.

Premature withdrawal can be done for specified categories of senior citizens.

Interest received from floating rate saving bonds is taxable as per income tax slab applicable to the person.

The interest rate would be reset every 6 months which is a risk. Hence, these are for moderate risk investors only.

7) Mutual Funds – Two Bucket Strategy

One of the biggest problem Senior Citizens would face is that the accumulated corpus keep reducing year on year along with increase in inflation rate. To address this, one can use two bucket strategy to get regular income + increase corpus.

Under two bucket strategy, one can invest 1/3rd (33%) of their corpus in short to medium term options like Short Term Debt funds or bank fixed deposits. They can get regular payout through interest or through systematic withdrawal plan (SWP) in mutual funds. Balance 2/3rd (67%) can be invested in a mix of debt and equity which can get doubled in 7-8 years.

While this strategy would help them to get higher payouts year on year, it also helps to increase their investment corpus. You might think whether senior citizens should invest in equity? If they want to beat inflation, there is no other option except to invest in equity. I am not saying they should go and invest majority of their corpus in equity. They can invest some portion in equity to beat inflation. It is the call they need to make depending on how much money they can invest for long term of say 8+ years.

The returns from mutual funds would be taxed based on short term capital gains or long term capital gains.

Which is the best investment option for Senior Citizens?

There is NO simple answer. Depending on the features and benefits, Sr. Citizens can choose the investment options suitable to them. First they can go for risk free investment options, move to low risk investment option and then to moderate risk investment option.

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Suresh KP

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