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    Welcome to the webchat with CA Harsh Roongta who is a SEBI registered investment adviser on Interest rate cut in Small Savings Schemes; what should be your strategy?

  • A


    In view of recent sliding down of interest rates what should we do with our bank FDs maturing in 1-2 months time , presently at.@9.5-10% p.a. Me and my wife are senior citizens. Total FDs interest income ~Rs 1 lac p.m. No other source of income. We don't have any liability. I want moderate liquidity, safety first priority. Kindly advise?


    it seems your bank fd portfolio is around rs. 1.20 crore plus which means tax is also an issue despite you being senior citizens. i would urge you to seek professional advise to structure your portfolio keeping in mind your need for safety as well as the scenario where interest rates are bound to fluctuate from year to year and you need to provide for both your expenses right now as well as the inflation in the future. Any solution will off course include Senior cistizen saving scheme to the fullest extent and for the balance it will be a mix of fixed income instruments such as bank FDs, Debt mutual funds. If you dont already have exposure to equity you will need some small exposure to equity as well to provide for future inflation.

  • V


    With the recent reduction in interest rates which of the two would be a preferred investment 5-year tax savings FD or NSC (VIII)?


    5 year NSC will give an interest rate of 8.10% (compounded annually). The interest rate on a 5 year tax saving bank FD is likely to be lower. Moreever there is zero liquidity in tax saving bank FD whereas you can get a loan against the NSC. But investment in tax saving bank FD is convenient whereas investment in NSC is administratively less convenient. On balance if liquidity is not a concern the tax saving bank FD will score despite a lower return due to its sheer adminstrative convenience.

  • M


    I m a senior citizen and would be receiving some of the retirement benefits shortly. I already have a joint account with my wife in the post office senior citizen scheme. Which other long-term small-saving instrument can I invest in?


    Have you already exhausted the entire Rs. 30 lakh limit for 2 joint accounts. Please see my answers to similiar queries in this chat.

  • H


    Now that the interest rate on PPF has been reduced is it advisable to reduce my contribution and increase my voluntary contribution to my company PF?


    I am not a great fan of the Employee Provident Fund Organisation (EPFO) as a fund manager. It has zero accountability, no benchmark to beat and very poor administration facilities for investors. A former finance minister has rightly described provident fund subscribers as 'hostages' rather than investors. So no i dont think you should voluntarily contribute more to your employee provident fund. Please remember the returns on employee provident fund will also drop next year if it sticks to its current stratgey of making only token investments in equity markets. If you are investing because of tax breaks and will invest only in fixed return schemes you can consider National savings certificate as well. i would also ask you to examine NPS (with all government secuities option) that will give additional tax breaks as well. But a bigger issue for investors like you is to learn to give up this complete dependance on government run schemes only that provide a modicum of fixed returns. Please look beyond these schemes to unlock value from your investments.

  • M


    I will be retiring in a few months of now from private service. Which are the best schemes currently on offer which are long-term in nature wherein the interest rates are over 8.5% and offering monthly payouts?


    The only scheme that comes to mind that offers guaranteed returns is Senior citizen savings scheme which offers 8.60% p.a. return but on a quarterly basis. The maximum amount that you can invest is Rs. 15 lakhs. You can invest if you are already turned 60 or else if you have retired between 55 and 60 and invest the retirement benefits within one month of receiving it. This interest rate will remain fixed for 5 years provided you subscribe between April 1, 2016 and June 30, 2016. these returns may come down if you subscribe on or after July 1, 2016 so you may need to take the desicion quickly in the next quarter. The other completely safe option is PO Monthly Income Scheme but offers only 7.80% . If the amount is more than Rs. 15 lakhs then you can also consider short term gilt funds with systematic monthly withdrawal facility but returns will vary and are unlikely to be around 8.50% indicated by you. Please consult a proper registered investment adviser to get proper advise if the amount to be invested exceeds Rs. 15 lakhs which you should definitely put in SCSS.

  • R


    Now that small savings rates have been cut, will renewing FDs in banks will be a more attractive option?


    The rates in bank FDs will also be lower at the time of renewal. so that is not really an option. Investors need to be prepared for an era where inteerst rates are going to keep on changing and they need to do proper investing based on their needs, risk profile and duration of investment.

  • M


    Hello Mr Roongta, I am 63 years old woman and have investment of around 5 lakh in Post Office Senior Citizen Savings Schemes. Since the interest rates have come down, do you think SCSS still remains an attractive option? Kindly suggest me some investment avenues where I can park around 5lakhs and get regular income?


    For risk free and fixed rate (at least for 5 years) Senior citizen savings scheme continues to be among the best options available.

  • S


    My PPF is due for redemption in August after the 15-year period. Since the principal and interest amount is not taxable what options are available to receive tax-free returns going forward?


    You can continue the PPF account by filing the necessary form and continuing to make the yearly investment. Off course interest rate will vary every quarter but remains attractive for high tax payers.

  • M


    Do you think investing in debt funds in a better option as compared to small savings schemes for a salaried person?


    For high tax payers long term investment in Gilt funds (mutual funds that invest exclusively in government securities) are likley to provide higher post tax returns than investments in without limit small savings instruments such as KVP, NSCs, etc. The liquidity is also better and the risk profile is only mildly higher if you stick to short term government securities fund.

  • S


    Dear Sir, what type of investments would you recommend for a 57-year old, salaried person as he is getting closer to his retirement age? I'm seeking this advice on behalf of my father whose income is around 13.5 lpa. We were planning for POMS but since the rates have been slashed, do you think there are some other option left? Can you suggest me some mutual funds from where I can get monthly income?


    I will need many more data points before this question can be answered. The investment needs to be seen in its totality not just this particular investment. There is a mistaken notion that retirement corpus needs to be invested only in completely safe fixed income instruments. Whilst this is largely true he will need a dash of equity as well to be able to get an inflation adjusted and post tax income for the next 25-30 years. Whilst PO MIS can definitely be a part of the solution it obviously needs to be a part of the overall solution that includes senior citizen savings scheme (when he becomes eligible) , bank FDs, debt funds as well as a dash of equity funds as well.