FD or SCSS? Best low-risk investment options for senior citizens

Some of the popular investment options are fixed deposits and recurring deposits. These are one of the most common types of investment for retired individuals.

As a senior citizen investor, you want your investments to give you money regularly and also grow over time for your retirement. Some investments do only one of these things, while others do both. If you already get a pension, you might not need investments that give you regular income. Instead, you could choose mutual funds that grow over time to build wealth for your retirement. But if you’re still working and don’t have a pension, you might prefer investments that give you regular income. So, think carefully about the kind of investment plan you want. 

Adhil Shetty, CEO of Bankbazaar lays down some popular investment options for senior citizens:

Fixed deposits and recurring deposits:

These are one of the most common types of investment for retired individuals. Banks offer higher interest rate (.50 basis points) on FDs and RDs for senior citizens. You can select different interest payout terms like monthly, quarterly, half-yearly, or yearly based on your chosen lock-in period. If you close a Senior Citizen FD early, there's a 1.0% penalty. But with a 5-year Tax Saver Fixed Deposit, premature withdrawal isn't allowed. This investment for senior citizens is in the ETT category. Up to Rs 50,000 of FD interest per year is tax-free for them. If you invest in the 5-year tax-saving FD, you can get a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961. Suppose you invest Rs 1 lakh for three years period in an FD and earn 8% interest rate. The amount you would get will be Rs 1,26824 at the maturity. 

The National Pension Scheme:

Thi is open to people aged 18 to 65, and seniors can continue until they're 70. By investing in NPS, you can get tax deductions up to Rs 1.50 lakh per year under Section 80C. Also, there's an extra benefit of Rs 50,000 a year under Section 80CCD. You can decide where your NPS money goes, like stocks, corporate bonds, or government securities, depending on your preference. If you prefer, you can choose the auto option, where the investments change based on your age.

Senior Citizen Savings Scheme (SCSS)

This is a savings scheme supported by the central government, specifically for people aged 60 and above. It ensures a guaranteed income throughout the investment period. You can earn 8.2% interest on deposits. The scheme falls into the ETT category, which stands for Exempt-Taxed-Taxed. This means you're exempt from tax on the investment itself, but the interest earned is taxed according to your income tax bracket, and the maturity amount is again taxed under section 80C. Additionally, if the interest income from this senior citizen's investment plan exceeds Rs 50,000 in a financial year, TDS (Tax Deducted at Source) is applicable. 

Value Research explains why SCSS is an ideal option for senior citizens: 

1. It's a government scheme. Hence it is safe. 
2. It has the highest return rate at 8.2 per cent, across small savings schemes. 
3. SCSS provides tax benefits (under Section 80C) on investment amount up to Rs 1.5 lakh. 
4. The upper investment limit per person is now Rs 30 lakh. This means if you and your spouse are both senior citizens, you can invest up to Rs 60 lakh in total by opening two separate accounts in your and your spouse's name, respectively
5. It provides flexibility in terms of premature withdrawal in case of an emergency.
6. Most importantly, in the unfortunate event of the account holder's death, the spouse gets unique benefits which are not offered by other schemes.

Bankbazaar lays down the ideal options for senior citizens in this table below

Fixed income options:

Apart from the ones mentioned below, here are some more low-risk options for senior citizens: 

The Post Office Monthly Scheme (POMIS) permits senior citizens to invest up to Rs.9 lakh in joint-names and Rs.4.50 lakhs in individual names. The interest rate is 7.40% and is payable monthly which makes it attractive for those who are looking at monthly income for meeting their expenses. Like in case of SCSS, the interest is taxable in the hands of the individual. 

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

In 2017, the Pradhan Mantri Vaya Vandana Yojana was introduced for all senior citizens. Operated and managed by LIC (Life Insurance Corporation), Pradhan Mantri Vaya Vandana Yojana is a retirement-cum-pension scheme. It is an instant annuity plan that provides a fixed sum regularly to you as an investor, once you invest a lump sum amount in this scheme. This LIC-offered program has a ten-year term and a guaranteed monthly income. The program's primary goal is to give retirees a regular pension during falling interest rates.

"Each senior citizen may invest a maximum of Rs 15 lakh under this program. A lump sum Purchase Price must be paid to purchase the scheme. The pensioner can select the Purchase Price or the Pension Amount. It has a 1-year term and offered a 7.4% interest rate the year before. Depending on how much you invested, the pension you will receive under the plan varies from Rs 1,000 to Rs 10,000 per month," noted Groww in a note.

Any contributions to this plan will not qualify for tax deductions under Section 80C. However, under the Goods and Services Tax (GST), the PMVVY program is exempt.

Tax-Free Bond

Tax free bonds are issued by government infrastructure organizations like NTPC Limited, Housing and Development Corporation, NHAI, and Indian Railways Finance Corporation.

1. Tenure: The tenure of the bond is above ten years.
2. Lock-in Period: The investment has a lock-in period until maturity. Though there is a lock-in period, investors can sell the bonds on the stock exchange.
3. Interest: The interest for these bonds ranges between 5.5%-6.5%. The bond issuer pays interest annually, and the entire interest amount is tax-free.
4. Risk Free: Tax free bonds are low-risk investments as the schemes are backed by the Government. Hence the chances of default are low. Moreover, the scheme offers capital protection and promises regular income in the form of interest payments. Hence it is an ideal investment option for senior citizens.
5. Taxation: The gains from the sale of bonds are taxable under Section 112. If the bond is sold before completing one year, the gains are taxable as per investor’s income tax slab rates. Suppose the bond is sold after one year. In that case, the long term capital gains will be taxable at 10% without indexation benefit and 20% with indexation benefit.

Source: Scripbox