Investments options for Senior Citizens

One of my journalist friends, who retired after completing 60 years, called me to seek my opinion about safe investment avenues with relatively better returns available for senior citizens. And this is how the idea germinated about this article. Let us discuss the safe investment avenues with better returns which are available to senior citizens.

Senior Citizen Savings Scheme (SCSS)

An Individual over 60 years can open a single or a joint account with spouse, under this scheme, with any post office or any designated bank. Non resident Indian (NRI) and person of Indian origin (PIO) are not eligible to invest under SCSS. Those who have taken voluntary retirement can , however,  open invest their retirement corpus here even before 60 years but after 55 years.  Likewise those who have retired from defence service, can also open account under SCSS anytime after 50 years of age. In both the cases the account needs to be opened within one month from receipt of the retirement money.

Under this scheme, you can open one or more accounts during one year or spread over different years. The minimum amount for opening an account under SCSS is 1,000/- but aggregate of deposits, in all the accounts taken together, cannot exceed Rs. 15 lakhs at any given point of time.

The account under SCSS has an initial tenure of five years which you can extend three years. You can withdraw money after one year but with a penalty. However in case you withdraw during the first year, the full interest paid is recovered back.

The rate of interest applicable for the accounts opened during the current quarter is 7.4% which is valid for full tenure of five years. The payment of interest is made quarterly and the first interest is adjusted so as to make all the subsequent payments quarterly. Interest under SCSS is taxable and is subject to tax deduction at sources.

The amount deposited under this scheme is eligible for deduction under Section 80C. This benefit is significant looking at the fact that other avenues under Section 80 C like life insurance premium, payment towards pension plan, contribution to PPF account, ULIP, repayment of home loan etc. are no longer workable or attractive for senior citizens.

Pradhan Mantri Vaya Vandana Yojna (PMVVY)

In addition to the SCSS, senior citizens have one more option to invest another 15 lakhs under “Pradhan Mantri Vaya Vandana Yojna (PMVVY)”, to earn higher returns. This product guarantees a pension at  7.40% p.a. if opted for monthly payouts. You also have other options to receive pensions at quarterly, half yearly and yearly intervals and the effective rate goes up accordingly. The rate is fixed for 10 years and then the full principal amount is repaid to you at the end of 10 years. This scheme is open only to resident Indian. It is managed by Life Insurance Corporation of India and can be bought online as well as offline.

Unlike SCSS there is no tax benefit for money deposited under this scheme. There is no provision for deduction of tax on annuity payments but the amount of annuity received by you is taxable.

You can withdraw money from this account before completion of 10 years but only under exceptional circumstances like for treatment of terminal illness or critical illness of the spouse or self but with 2% deduction from the principal amount. You can also avail loan upto 75% of the amount deposited by you after three years. The amount of interest on loans is adjusted against pension payable to you. Any amount of loan remaining unpaid shall be adjusted against the principal payable.

RBI floating rate savings bonds

After you have exhausted limit of 15 lakhs available under SCSS and PMVVY each, you can invest in the floating rate savings bonds issued by the RBI with tenure of seven years. There is no age limit or the maximum amount upto which you can invest in these bonds. These bonds can be bought online and offline through the authorised banks.

Any person who is a resident of India can invest in these bonds. A resident who become non resident later on is allowed to continue to hold these bonds.

Unlike SCSS and PMVVY where the rate of interest gets fixed for the full tenure, the interest under these bonds keeps floating and the interest for a half year is announced by RBI. Presently the rate interest is pegged at 0.35% higher than those payable on National Saving certificates. So any change in the interest on NSC shall automatically change the interest payable on these bonds. The interest on these bonds is taxable and subject to deduction of tax at source.

Individuals between the age of 60 and 70 are allowed to go for premature redemption of these bonds after seventh year of their tenure. The individual bond holder who is between 70 and 80 can go for early redemption anytime after five years and for those above 80 years can go for redemption after the bonds have run for 4 years.

The writer is a tax and investment expert and working as Chief Editor of ApnaPaisa. He can be reached at balwant.jain@apnapaisa.com