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Top 7 investment options for senior citizens who want regular income

After retirement, senior citizens usually look for investment avenues offering fixed returns. Here are seven popular investment options that senior citizens can consider for a regular income. Some of these investments also offer income tax benefits to the investors.

Senior Citizen Savings Scheme (SCSS)

Government-backed Senior Citizen Savings Scheme (SCSS) is one of the most-preferred investment options among retirees. Anyone aged 60 and above can invest in this scheme. Retired individuals aged above 55 years but below 60 years can also opt for this scheme if they invest within a month of receiving retirement benefits.

The minimum investment limit is Rs 1,000 while the maximum investment can go up to Rs 15 lakh. It has a five-year tenure, but it can be further extended by three years on maturity.

For investments made in the June-September quarter of FY2022-23, the Senior Citizen Savings Scheme offers an interest rate of 7.4 per cent per annum. The interest is payable every quarter and fully taxable. The scheme does not provide any interest on maturity. Further, once the investment is done the interest rate remains the same throughout the tenure. However, if an investor extends the scheme after maturity, he or she will earn interest according to the interest rate applicable for the scheme on the date of extension.

A premature withdrawal option with penalties is allowed after completion of one year from the date of opening the account. For premature withdrawal after one year, an amount equal to 1.5 per cent of the deposit is deducted as a penalty. In case of premature withdrawal on or after the second year, an amount equal to 1 per cent of the deposit is deducted.

Senior citizens can claim a tax deduction for investments in this scheme under Section 80 C of the Income Tax Act, 1961.

Pradhan Mantri Vaya Vandana Yojana (PMVVV)

Launched in 2017, Pradhan Mantri Vaya Vandana Yojana (PMVVY) is an investment scheme that offers regular income to senior citizens and retirees. Individuals above 60 years of age can invest in this scheme. The tenure for Pradhan Mantri Vaya Vandana Yojana is 10 years.

Currently, Pradhan Mantri Vaya Vandana Yojana offers an interest rate of 7.4 per cent per annum. The interest rate is revised at the start of every financial year in line with the interest rate of the Senior Citizen Savings Scheme. Hence, any change in the interest rate of the Senior Citizen Savings Scheme will also impact the interest rate offered on PMVVY.

For subscribers, the interest rate remains the same for the entire tenure of 10 years.

This scheme offers pensions on a monthly, quarterly, half-yearly, and yearly basis. The pension amount will depend on how much subscribers invest while opting for the scheme. Senior citizens can invest a minimum amount of Rs 1,56,658 and a maximum amount of Rs 15 lakh in PMVVY.

For example, a retiree investing Rs 3 lakh in the scheme will get an annual pension of Rs 24,900.

A senior citizen can take a maximum loan of 75 per cent of the invested amount after completing three years. The loan interest will be recovered from the pension amount payable under the scheme.

Premature exit option is available under exceptional circumstances such as the critical or terminal illness of self or spouse. In such cases, individuals will get 98 per cent of the purchase value back. The scheme does not offer any tax benefit.

The last date to invest in this scheme is March 31, 2023.

The pension received is fully taxable in the hands of a senior citizen.

Also read:
PMVVY pension scheme: This important feature is due for reset on April 1

Bank fixed deposits

Fixed returns and comparatively lower risks than other investment avenues such as equity instruments have made bank fixed deposits (FDs) an extremely popular investment choice among senior citizens. Bank fixed deposit interest rates depend on various factors such as the Reserve Bank of India policy rate, macroeconomic conditions, etc. Most banks usually offer an additional interest of 0.50 per cent to senior citizens over and above the normal interest rates offered of various deposit tenures.

There are fixed deposits that pay out interest to investors at regular intervals — monthly, quarterly, half-yearly, or yearly. Senior citizens will get an option to choose the period of interest pay-out at the time of opening their fixed deposits. It must be noted that the interest rate per annum is higher on the yearly pay-out than on the monthly pay-out.

Banks also offer tax-saving FDs which have a lock-in period of five years. Subscribers are eligible to claim an income tax deduction of up to Rs 1.5 lakh under Section 80 C of the Income Tax Act, 1961 for investments in tax-savings fixed deposits.

The interest is taxable in line with the income tax rate applicable to investors. Besides, the banks will deduct a TDS at 10 per cent if the interest income across all bank FDs exceeds Rs 50,000 in a financial year in case of senior citizens.

Special term deposits with banks

Several banks offer special term deposits of five years and above, to senior citizens. SBI WeCare FD and ICICI Bank Golden years FD are a few examples of special deposits available only to senior citizens.

SBI WeCare FD offers an additional interest of 0.30 per cent (over and above the existing additional 50 basis points offered to senior citizens) on retail term deposits of five years and above. This special scheme is available till March 31, 2023.

Under ICICI Golden years FD, senior citizens can earn an extra interest of 0.20 per cent per annum for fixed deposits of five years and above. The additional interest rate will be applicable on both new deposits and renewals. This special deposit was earlier extended till October 7, 2022.

While these special FDs offer slightly higher interest rates, they are subject to certain conditions with respect to premature withdrawal.

RBI Floating Rate Savings Bonds 2020 (Taxable)

The Reserve Bank of India’s (RBI) Floating Rate Savings Bonds 2020 (Taxable), popularly known as the RBI 7.15% Bonds is another popular investment option among senior citizens. They are called floating-rate bonds as the interest rate on these bonds is reset every six months. The interest rate on floating-rate bonds is linked to National Savings Certificate (NSC). They will offer 0.35 per cent more than the prevailing NSC interest rate.

RBI Floating Rate Savings Bonds currently offer an interest rate of 7.15 per annum. The interest is reset on January 1 and July 1 every year. Further, the interest is paid at half-yearly intervals on January 1 and July 1 every year for the preceding 6 months.

The minimum investment limit is Rs 1,000 and there is no cap on the maximum investment.

These bonds have a tenure of seven years. However, a premature exit option is allowed for investors who are 60 years and above. For a senior citizen aged between 60 to 70 years, the lock-in period is six years. The lock-in period is five years if the investor is in the age bracket of 70-80 and four years if his or her age is 80 or more.

Do remember that the interest rate on these bonds is fully taxable.

Post Office Monthly Income Scheme (POMIS)

The government-backed Post Office Monthly Income Scheme (POMIS) offers fixed monthly income to investors. The scheme is open to all but is preferred by senior citizens wanting to get a monthly income.

The minimum investment limit has been fixed at Rs 1,000. Senior citizens can invest a maximum of Rs 4.5 lakh in a single account and up to Rs 9 lakh in the case of a joint account.

At present, Post Office Monthly Income Scheme offers an interest rate of 6.6 per cent per annum. The interest is credited at the end of every month. The interest rate is reviewed by the government every quarter. However, once invested it remains the same throughout the tenure of five years.

Premature withdrawal facility is available after one year with a penalty. If investors withdraw before three years, a fee of 2 per cent on the deposit amount will be applicable. For closure after three years, a deduction of 1 per cent on the deposit will be charged. It does not offer any income tax benefit. Interest received is fully taxable.

Post Office Time Deposit Account (POTD)
Post Office Time Deposit Account (POTD) is one of the most well-known small savings schemes offered by India Post. Deposits under Post Office Time Deposit can have a tenure of one, two, three, or five years. An investor can open an account with a minimum of Rs 1,000 and there is no cap on the maximum investment. These POTDs are open for investment to non-senior citizens also.

Interest on Post Office Time Deposit Account is calculated quarterly but payable yearly. For July to September quarter of FY23, POTD offers an interest rate of 5.5 per cent on time deposits with tenure of one to three years. A five-year Post Office Time Deposit Account is offering an interest rate of 6.7 per cent per annum on investments made till September 30, 2022. The Finance ministry reviews the interest rates of small savings schemes every quarter.

On maturity, investors will have an option to further extend the account for another tenure for which the account was initially opened.

If a time deposit account is closed within a year, senior citizens will get the interest rate applicable to Post Office Savings Account at that time. For premature closure of the time deposit accounts after one year, the interest will be 2 per cent less than that of time deposit interest rates for completed years (i.e., one, two, or three years). For the part period of less than a year such as months, Post Office Savings Interest rates will be applicable.

For a 5-year Post Office Time Deposit Account, senior citizens can claim a tax deduction under Section 80 C of the Income Tax Act, 1961.



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