Retired couples can earn Rs 8,00,000 from select govt investment schemes

Equities, debt MFs and annuities should also be part of portfolio

The doubling of the investment limit for Senior Citizens Savings Scheme (SCSS) to Rs 30 lakh and Post Office Monthly Income Scheme (POMIS) to Rs 9 lakh per investor in the Budget may seem like a bonanza for risk-averse investors. While the former is reserved exclusively for senior citizens and pays interest quarterly, the latter is open to anyone seeking monthly income payout and attracts many senior citizens.

In addition, senior citizens can also invest up to Rs 15 lakh in Pradhan Mantri Vaya Vandana Yojana (PMVVY). Altogether, a male senior citizen can invest Rs 54 lakh. The limit rises further to Rs 56 lakh for a woman if she invests in the newly-launched Mahila Samman Saving Certificate (MSCC). Thus, a senior citizen couple can invest around Rs 1.1 crore and earn over Rs 8 lakh per year pre-tax at current interest rates on these instruments.

While investment limits in these products have gone up, experts say senior citizens need to take a measured exposure to them.

“Allocate some part of your retirement corpus to these schemes, but you also need exposure to assets that can generate inflation-adjusted returns,” says Pankaj Mathpal, managing director, Optima Money Managers.

Allocate to equities

With life expectancy rising, senior citizens need to assess whether their portfolios are equipped to handle the destruction in purchasing power caused by inflation. “Some exposure to equity-oriented investments will help the corpus grow and provide protection against inflation,” says Suresh Sadagopan, managing director and principal officer, Ladder7 Wealth Planners.

According to him, allocation to equity-oriented assets should depend on portfolio size, risk tolerance, age and tax bracket. “The equity allocation should be minimum 10 per cent and can go as high as 40 per cent,” says Sadagopan. 

Go with hybrid and index funds

Senior citizens may take exposure to equities via aggressive hybrid funds, balanced advantage funds, and, to some extent, large-cap index funds.

Mathpal says the risk averse can opt for conservative hybrid funds. He suggests generating cash flows from these funds via Systematic Withdrawal Plans (SWPs).

Hybrid funds tend to be less volatile. They also carry out portfolio rebalancing on the investor’s behalf. 

Consider bond funds

Seniors should also consider investing in corporate bond funds and short-duration funds. Invest in these funds three years before retirement so that the money withdrawn via SWP is treated as long-term capital gain.

“Debt funds can also be used to generate steady income during retirement. Senior citizens who are not comfortable with equities may invest that allocation also in debt MFs. At present, even the highest credit rated or G-Sec portfolios are offering attractive yields,” says Amol Joshi, founder, PlanRupee Investment Managers.

Sadagopan suggests that senior citizens also consider target maturity funds.

Use annuities

The only product that can guard you against longevity risk is immediate annuities. But their returns won’t be inflation-adjusted. The returns can also be low. So, buy annuity without the return of purchase price option as it provides better returns. Also, stagger your purchases. Returns get more attractive with age. 

Assess tax incidence

Income from annuities and from most fixed income schemes is taxable at slab rate. “Most traditional fixed income assets will typically have adverse taxation,” says Joshi.

Sadagopan suggests that investors in higher tax brackets take exposure to debt mutual funds to reduce their tax liability.

Senior citizens should make sure they don’t generate returns above their monthly needs, as that will only lead to taxation. Surpluses should instead be invested in equity-oriented instruments for growth.

Don’t be greedy

SCSS, PMVVY and POMIS are all offering attractive rates of return. Public Provident Fund (PPF), once it has completed 15 years, can also be extended and used to generate tax-free returns.

While many bonds are offering higher returns than these government schemes, senior citizens should be wary of the credit risk in them.

After retirement, avoid investing in life insurance policies that promise tax-free returns over a decade or two. These will require you to pay a regular premium, which may hurt your cash flows. Returns from most traditional policies don’t exceed 4-5 per cent.