When we take a glance at our future from this point, the realization of the fact that our bones and skin are on the verge of aging, and isn’t stopping, though we wish to. That’s the nature of human reality, and it’s the same for all the existential things out there. The question is, will we be strong and energetic enough like we are at the moment? The straightaway answer is, No! What seems happening now, may not be then and going forth.
Have you given thought to what’s next? From this standpoint, it’s also imperative to think that the regular income that has been paying for your efforts for so long will no longer be regular unless you have made investments. So this logically holds good for those who are yet to make investments or those who want to invest.
Let’s discuss some of the good investment plans for senior citizens in this article. Are you one or reading for your beloved elder ones? These are the plans one should be invested in for regular returns.
But before which, why should you invest?
With investment planning, an investor can rest assured of future instances. Having this plan aids in achieving financial freedom, for a longer time and as well for the stipulated time. It depends on your financial needs, though.
Why keep the money just saved? But instead, maximize it by growing. To achieve exactly that, the returns received on the capital gains are going to help. That’s why accumulating money is not the main deal but growing it, is.
To even start investing, let’s go through the investments that are good for you
1. National Pension Scheme
The most popularly known scheme among senior citizens is the National Pension System, which is open to all working professionals, whether it’s from the public or private sectors that are unorganized. It doesn’t matter if you are 18 or 60; up until this bracket, individuals are allowed to open an account right away.
This scheme is associated with instruments such as debt and equity, and hence the returns depend on the performance of these assets, and one can expect anywhere between 8 – 10% interest rate on the contribution amount.
Now, what about the investment requirement? Having a minimum amount of Rs 6000 for a year is enough to start with, which can either be paid in installments with a minimum of Rs 500 monthly or a lump-sum amount at once. One can continue contributing the amount till 60 years of age or stop anywhere between. But the deal of this scheme is to give you returns after the superannuation age (i.e 60) to receive it monthly.
A quick look at the National Pension Scheme
- A part of the contributed amount in the scheme goes to equity.
- The interest rate offered in this scheme is 8 – 10%.
- The fund manager takes care of an individual account and in case of dissatisfying performance, one can change the Fund Manager.
- There are 2 types of accounts, Tier I and Tier II. The minimum contribution of Rs 6000 in the case of Tier I one in a lump sum or Rs 500 in monthly installments. While in Tier II a minimum contribution of Rs 2000 in a lump sum or Rs 250 in monthly installments.
- Withdrawal terms: One can only withdraw 60% after retirement while the 40% goes to the pension scheme back again to receive a monthly annuity or pension. Until 5 years of being invested in the scheme, one can withdraw up to 3 times.
Illustration of NPS Scheme
Imagine Mr. Ayush of age 28 years private organization employee, subscribes to the NPS scheme to invest Rs 5000 every month. The maturity of the NPS scheme is 60 years, which means Mr. Ayush can contribute until 32 years and receives an interest of 8% in return per annum. At the same time, he opts for a 50% annuity and is expecting a 7% rate on the annuity.
In this case, here is a clear picture of the investment:
Investment until 60: ₹19,20,000
The wealth generated in Pension: ₹89,28,920.93
Lump sum value (50%): ₹44,64,460.47
Annuity value (50%): ₹44,64,460.47
Monthly pension: ₹26,042.69
2. Senior Citizen Saving Scheme
The scheme is also known as SCSS which is a fixed-income instrument. People above the age of 60 years can invest in this scheme starting from a minimum amount of Rs 1000 to a maximum of up to Rs 15,00,000 for a tenure of 5 years and an interest rate up to 7.6% per annum. It has been started with the intent for senior citizens to receive fixed regular income post their retirement. Currently, the banks and post offices have made this scheme available to all. The interesting fact about the scheme is that it is government backed and the returns are surely ensured and paid every quarter.
Retirees coming under the bracket of 55 – 60 years and have opted for the Voluntary Retirement Scheme are also eligible to invest in this scheme. The account holder can also extend the account in the scheme for 3 more years after it reaches maturity.
A quick look at the Senior Citizen Saving Scheme
- Government-backed fixed-income instrument
- The interest rate at 7.6% per annum
- Investment is exempted from tax deduction under the Income Tax Act of Section 80 C up to 1.5 lakhs. However, it is taxable as per the slab rate.
- Minimum investment of Rs 1000 in multiples to a maximum of Rs 15,00,000.
- It matures after 5 years and can be extended up to 3 more years.
- Premature withdrawal is allowed but with some penalty: Interest wouldn’t be paid if withdrawn before 1 year and in case of any interest payment, will be deducted from the principal before the withdrawal. 1.5% penalty on the principal if withdrawn before 2 years and 1% penalty on the principal if withdrawn between 2 and 5 years.
Illustration of SCSS Scheme
Assuming Mr. Ayush decides to invest in this scheme with an investment of Rs 1,50,000 in a tenure of 5 years, expecting an interest rate return of 7.6% per annum. So what’s happening in this scheme then?
In this case, here is a clear picture of the investment:
Investment amount: ₹ 1,50,000
The wealth generated in the scheme: ₹ 2,07,000
Total Interest Received: ₹ 57,000
Quarterly Interest receivable: ₹ 2,850
3. Pradhan Mantri Vaya Vandana Yojana
Pradhan Mantri Vaya Yojna known as PMVVY is a social security scheme for the Pension and Retirement Plan which is supported by the Government of India. While you call it an investment amount, the scheme calls it a “Purchasing Price”. Like any other scheme, this one assures the rate of interest in return paid monthly, quarterly, semi-annually, or yearly basis as you pick. While you are wondering what the interest rate is, it is at 7.40% per annum. And LIC – Life Insurance Corporation is the one who operates this scheme.
Now coming to the eligibility criteria of the account holder, it is 60 years of age and above and is a resident of India. While the maximum years of age of an individual have no restriction. If you are in this scheme then it’s mandatory to be in it for a minimum of 10 years. The purchase price has to be bought in a lump sum at one time. So the minimum purchase price will be Rs 1,62,162 to receive a pension amount of Rs 1000 per month and the maximum purchase price is up to Rs 15,00,000 to receive a pension of Rs 9,250 per month.
A quick look at Pradhan Mantri Vaya Vandana Yojana
- A government-subsidized scheme
- Assured returns of 7.40%
- The scheme has a free lock-in period, meaning one can receive a refund of the purchase price if they aren’t satisfied with the scheme stating the reason. If opted for the scheme online then exit can be done within 30 days of the purchase or otherwise in 15 days for offline purchase of the scheme. But with deduction of either charge, stamp duty, and pension amount paid if any.
- The minimum purchase price is up to Rs1,63,168 and the maximum of up to Rs 15,00,000 which can’t be exceeded.
- The minimum pension amount paid is Rs 1000 and the maximum is up to Rs 9250 per month.
- A loan of up to 75% of the purchase price can be availed by the account holder after 3 years of the policy.
- The returns earned will undergo income tax deduction as applicable.
Illustration of the Pradhan Mantri Vaya Vandana Yojana
Suppose this time Mr. Ayush decides to invest in Pradhan Mantri Vaya Vandana Yojna with an investment of Rs 1,62,162 for a term of 10 years and wishes to expect a monthly pay.
In this case, here is a clear picture of the investment:
Investment amount ₹ 1,62,162
Monthly Pension Amount Receivable ₹ 1000
4. Tax-Free Bonds
The public sector companies issue bonds for raising funds to complete specific projects called Tax Free Bonds. For instance, NHAI Bond! These are government-backed bonds and hence offer assured returns with no risk of default. And by the name, it says the income received is tax-free. While not only exempting tax deduction under the income tax act of 80 C but also nullifying the tax levied on the tax slab of your income.
A quick look at Tax-free bonds
- Neither TDS nor Tax is applied to the interest earned on this bond.
- The interest rate offered in tax-free bonds is anywhere between 5.5% to 6.5%. So in this case no tax is levied, hence the entire return of 5.5 to 6.5% is returned to you.
- The tax-adjusted bonds have a maturity of 15 years and more. If one is a long-term investor then it works great for them to be invested in this as the lock-in period is to the maturity.
- This bond’s interest and principal repayment are rest assured as it is a public undertaking and hence has zero default risk.
- Benefits of saving tax while selling a property. Usually, on selling a property, a long-term capital gain tax of 20% is levied on the money received. Instead, the capital gains can be invested in tax-free bonds to save the tax levied but have to be invested for a lock-in period of 5 years and the maximum investment is only up to Rs 50 lakhs.
Illustration of Tax-free bonds
Let’s assume Mr. Ayush’s income is Rs 15,00,000 and he makes an initial investment in tax-free bonds of Rs 1,00,000 and is invested in it for 10 years receiving an interest rate of 5.55 per annum. The point to be noted is, he falls under a tax bracket of 30%.
In this case, here is a clear picture of the investment:
Annual Income ₹ 15,00,000
Initial Investment ₹ 1,00,000
Interest earned (5.5%) ₹ 5,500
Income that is taxable ₹ 15,00,000
Payable tax on interest (30%) ₹ 0
After-tax return ₹ 5,500
The after-tax interest of 5.5%
So on tax-free bonds, one can see that no tax was levied on returns received from the investment.
More details on Tax-free Bonds are here!
Inference
Investing is one of the smart things one can be associated with and picking the right investment plan allows the money accumulated to grow in imaginable numbers, depending on the interest received. After all, it’s not about investing right away into any scheme you see, it’s about understanding the risk of each investment and the returns associated with it. And then comes the understanding of an individual’s investment style to see which plan meets their financial goals to even begin investing. Especially when it comes to senior citizens, these plans are intended to give them a fixed income post-retirement, so that they meet their desired needs.
