Inaya Mclaughlin
There are many options for investing your retirement corpus, each with its own advantages and disadvantages. It's important to review your investment portfolio from time to time and make adjustments to match your risk appetite, return requirements and inflation. Here are some of the best options:
- Senior Citizen Saving Scheme (SCSS)
- Pradhan Mantri Vaya Vandana Yojana (PMVVY)
- Post Office Monthly Income Scheme
- RBI Floating Rate Savings Bonds
- Conservative Funds
- Bank Fixed Deposits (FDs)
- National Pension Scheme (NPS)
- Systematic Withdrawal Plan (SWP)
- Dividend-yield debt and equity
- Post Office Senior Citizen Savings Scheme (SCSS)
Retirement Corpus Investment Options
| Characteristics | Values |
|---|---|
| Senior Citizen Saving Scheme | Fixed rate of return that beats inflation, promises a regular stream of income. The current interest rate is 7.4%, higher than bank FDs. The interest received is taxable, but the amount deposited is deductible under Section 80C. The minimum amount is Rs. 1,000, with an initial tenure of five years and a one-time extension of three years. The total amount invested should not exceed Rs. 15 lakhs. |
| Pradhan Mantri Vaya Vandana Yojana | Offers a fixed monthly pension rate of 7.4% for ten years. The scheme has been extended until March 31, 2023, with a minimum age of 60 years. Investors can choose between quarterly, half-yearly, or annual payouts. No tax advantages, but better liquidity as 75% of the invested money is accessible as a loan after three years. |
| Post Office Monthly Income Scheme | A government-sponsored scheme with a slightly lower interest rate of 6.6%. It has a tenure of 5 years and an investment cap of Rs. 4.5 lakhs for single account holders or Rs. 9 lakhs for joint accounts. Low risk of losing money, but no tax benefits. |
| RBI Floating Rate Savings Bonds | Offers flexibility in age and investible amounts. These bonds have a seven-year tenure and are redeemed at face value, with the interest rate varying bi-annually. The coupon rate for the first coupon period (January 1, 2021) was 7.15%. The coupon rate is linked 0.35% higher than NSC. |
| Conservative Funds | Asset allocation of 85-90% debt and 5-10% equity, focusing on capital preservation. Suitable for low-risk investors who want better returns than pure debt funds. Ideal for investors seeking consistent returns and those with long-term financial goals and low-risk tolerance. |
| Bank Fixed Deposits | Widely appreciated for security, predictable returns, and ease of operation. However, the interest rate has been declining. Bank deposits offer flexibility in terms of duration. The five-year tax-saving bank FD offers tax benefits under Section 80C but has a five-year lock-in period. |
| National Pension Scheme | Cost-effective retirement investment offered by the Indian Government. The minimum deposit amount is Rs. 500, with no upper cap. NPS invests in four asset classes: government securities, corporate bonds, equity, and alternate investment funds (AIF). Investors can toggle the allocation limit towards each class. |
| Systematic Withdrawal Plan | Allows investors to withdraw their mutual fund investments at a regular frequency, ensuring monthly returns. |
| Dividend-yielding Mutual Funds or Stocks | Dividend mutual funds may distribute monthly dividends, providing a regular stream of income. The underlying stocks typically comprise companies with strong financials. |
What You'll Learn
Senior Citizen Saving Scheme
The Senior Citizen Saving Scheme (SCSS) is a government-backed retirement benefits programme for senior citizens in India. The scheme offers a regular stream of income with the highest safety and tax-saving benefits. It is a good option for those over 60 years of age.
The scheme allows senior citizens in India to invest a lump sum individually or jointly and receive regular income and tax benefits. The maturity period of the SCSS is 5 years. However, individuals can extend the maturity period for 3 more years by submitting an application. The application for an extension of maturity should be given in the last year. The minimum deposit amount is Rs.1,000 and the maximum is Rs.30 lakh. The deposits can be made in multiples of Rs.1,000.
Where can you open an account?
An SCSS account can be opened at a post office branch or an authorised bank. The following banks offer SCSS:
- Central Bank of India
- Indian Overseas Bank
- Oriental Bank of Commerce
- Punjab National Bank
- State Bank of Bikaner & Jaipur
- State Bank of Hyderabad
- State Bank of Mysore
- State Bank of Patiala
- United Bank of India
The SCSS is an Indian government-sponsored investment scheme and hence is considered safe and reliable. The account is transferable across India. The scheme offers a high interest rate of 8.2% p.a. on the deposit. Individuals can get an income tax deduction of up to Rs.1.5 lakh under Section 80C of the Indian Tax Act, 1961. The 5-year tenure of the account can be extended for another 3 years.
Who is eligible?
The following individuals can open an SCSS account with a post office or bank:
- Individuals above 60 years.
- Retired civilian employees above 55 years and below 60 years, provided the investment is made within 1 month of receipt of retirement benefits.
- Retired defence employees above 50 years and below 60 years, provided the investment is made within 1 month of receipt of retirement benefits.
Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not eligible to open an SCSS account.
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Pradhan Mantri Vaya Vandana Yojana
PMVVY is an insurance policy-cum-pension scheme that provides security to senior citizens. This pension plan is provided by the Life Insurance Corporation (LIC) of India, which caters to one's need for post-retirement financial planning. The scheme can be purchased offline or online through LIC, which has been given the sole privilege to operate it.
The PMVVY scheme offers a guaranteed pension rate of 7.4% on a monthly basis for a period of 10 years. The pensioner can choose their payout period, be it quarterly, half-yearly, or annually. The scheme provides an initially assured rate of return of 7.40% per annum for the year 2020-21, and thereafter it will be reset every year. The interest earned on the scheme is directly credited into the policyholders' accounts on a monthly basis.
The maximum investment allowed under the PMVVY scheme is INR 15 lakh. The pension amount a policyholder can earn depends on the purchase price and mode of payment chosen. For example, the maximum monthly pension of INR 9,250 can be earned on a purchase price of INR 15 lakh. The pension will be INR 1,11,000 per annum on the purchase price of INR 14,49,086.
The PMVVY scheme allows account holders to deposit a lump sum amount with the option to choose the mode of payment for receiving the pension. The pension payment shall be through NEFT or the Aadhaar Enabled Payment System. The first pension instalment shall be paid after 1 year, 6 months, 3 months, or 1 month from the date of purchase of the same, depending on the mode of pension payment chosen.
The scheme also allows for premature exits under exceptional circumstances and emergencies, such as the treatment of any critical/terminal illness of the self or spouse. On such premature exits, 98% of the purchase price shall be refunded. On the death of the pensioner during the policy term of 10 years, the purchase price shall be paid to the beneficiary.
The PMVVY scheme offers higher returns than even the popular fixed deposits offered by banks and non-banking financial companies in India. If we consider the interest earned on a regular fixed deposit account in India for the current financial year, it is anywhere between 5% to 6.35% for a public sector bank on one-year deposits, while the PMVVY is giving investors a 7.4% return per annum.
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Post Office Monthly Income Scheme
The Post Office Monthly Income Scheme (POMIS) is a government-backed scheme that offers a steady and low-risk income. It is one of the highest-earning schemes, with an interest rate of 6.6% as of 2024. The interest is disbursed monthly, and the maturity period is 5 years. The minimum investment amount is ₹1,500, while the maximum amount is ₹4.5 lakh for single account holders and ₹9 lakh for joint account holders. The scheme allows for multiple fund owners, and the income is not subject to TDS or tax deductions. The scheme also offers capital protection and is suitable for senior citizens and retired persons.
To open a POMIS account, individuals must have a Post Office savings account. They can then fill out an application form and submit it to the Post Office along with the necessary documents, such as proof of identity and address. The minimum lock-in period for the scheme is 5 years, and individuals can withdraw the deposited amount after the tenure either from the post office or by crediting it to their savings account. Early withdrawals incur penalties, with a 2% penalty on the principal amount if the account is closed between the 1st and 3rd year, and a 1% penalty if closed between the 3rd and 5th year.
POMIS offers guaranteed returns, ease of transaction, and the option to reinvest the corpus after maturity. It is a good option for those looking for long-term investment and regular income, especially senior citizens. The scheme provides a stable and safe investment opportunity with a low risk of losing money.
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RBI Floating Rate Savings Bonds
If you are looking for flexibility in terms of age and investment amounts, RBI Floating Rate Savings Bonds are a good option. These bonds are issued by the Government of India and are open to investment by individuals, including joint holdings, but excluding NRIs. The minimum investment amount is ₹1,000, and there is no maximum limit. The bonds are issued in demat form only and have a maturity period of seven years, after which they are redeemed at face value. The interest rate is floating and varies bi-annually, always remaining 0.35% higher than the National Savings Certificate (NSC) rate. The interest is payable semi-annually in January and July each year and is taxable under the Income-tax Act, 1961. Premature redemption is allowed for investors aged 60 years and above, with a minimum lock-in period of 4 to 6 years depending on the age bracket. The bonds are not transferable or eligible as collateral for loans.
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Conservative funds
Some examples of conservative funds include:
- Vanguard Tax-Managed Balanced Fund (VTMFX)
- American Funds Tax-Advantaged Income Fund (TAIAX)
- T. Rowe Price Personal Strategy Income Fund (PRSIX)
- Thrivent Diversified Income Plus Fund (THYFX)
It is important to note that this content is for informational purposes only and should not be considered financial advice. Retirees should always work with financial professionals and conduct their own research to make suitable investment choices based on their needs and goals.
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