Last week, we talked about the importance of saving along with investing. The good news is that understanding it is easier than you think. The bad news is that it takes longer than people think. The purpose of investing is to secure the future. Such a stage comes in the future of every person, when it is not possible for them to earn money. The reason for this can be retirement or loss of job or non-availability of money immediately, any of these can happen. The truth is that the sooner you can start planning for such times, the better. You may be aware of this or know how to do this, but it is equally important to inform people close to you about it, such as your parents. You can help your parents invest for their future.
They may be doing a government job and are going to get a pension, yet it may happen that the pension amount may not be enough to live comfortably or to maintain their current lifestyle. At the same time, it is also necessary to take into account the increased life expectancy and inflation.
Information on what to invest in as you prepare for retirement is readily available, but if your parents aren’t tech-savvy, it may be difficult for them to understand or acquire that information. Read the options carefully and start taking steps towards building adequate financial security so that your parents do not face any kind of financial stress during their retirement days.
One thing to keep in mind is that depending on what your parents’ financial situation is, they will need to be a bit more conservative or aggressive in the way they invest their money. For example, those who are going to get a guaranteed pension can take a higher risk than others who do not have a guaranteed pension. Continuing to invest wisely even after retirement will ensure their further financial stability.
So now let’s take a look at some of the best investment options that are available for senior citizens in India:
1.National Pension Scheme (NPS)
This is a great option for people starting to save for their retirement, as the eligibility age for investing in NPS is from 18-65, the maximum age limit can be raised to 70. The benefits from NPS are generated by investing in equity or debt funds as per your choice, hence there is no fixed interest rate in this scheme. Investing in Equity Funds naturally yields high returns (If you are not aware of what Equity Funds are, read the investment beginner’s guide)
60% of the NPS corpus (principal amount) is tax-free, while the remaining portion needs to be spent on annuity purchase (a monthly pension given to you in lieu of lump sum pension). In addition, investment in NPS is tax-deductible up to Rs 1.5 lakh under section 80C and an additional Rs 50,000 is also deductible under 80CCD(1B).
2. Senior Citizen Savings Scheme (SCSS)
It is a government-regulated scheme in which people above the age of 60 years (or those above 55 years of age if they invest within a month of taking premature retirement) can invest. The capital is completely safe, the interest rate is 8.6% higher as compared to other schemes and it keeps on rising as it is revised every quarter (However, once you invest, the interest rate for your investment is fixed. It happens).
You can invest a maximum of Rs 15 lakh in this for a maximum period of 5 years. The investment period can be extended for another 3 years. Investments made in this scheme are tax deductible under section 80C up to Rs 1.5 lakh, but keep in mind that the interest earned on it is taxable. You can withdraw from it before the completion of the investment period but for that you may have to pay a penalty.
3. Post Office Monthly Income Scheme (POMIS)
This is a government supported scheme. It is best suited for people who have low risk appetite, such as retirees who need to get money every month like a pension (However, individuals of 10 years of age or above can invest in this scheme ). Non-resident Indians are not eligible for investment in this scheme. The current interest rate is 7.6%.
The investment tenure is 5 years and the amount you get at the time of maturity can be reinvested in this scheme if you want. You can open multiple accounts in this plan, but the maximum amount limit is Rs 4.5 lakh for an individual account and Rs 9 lakh for joint accounts. Note that the interest earned is taxable and neither will your investment be tax-deductible.
4. Fixed Deposit
A popular option for senior citizens, as it has a 0.5% higher interest rate for senior citizens and the interest income is tax-free up to Rs 50,000 (compared to the usual Rs 10,000 and only savings accounts are created).
The investment tenure is of 5 years and investments up to Rs 1.5 lakh are tax-deductible, but the interest earned is taxable.
5. Public Provident Fund (PPF)
Although, this scheme is not specifically designed for senior citizens (to know more about this scheme, please read the investment beginner guidance), but investing in this scheme is beneficial for senior citizens. This is because the interest earned with maturity is tax-free, and the interest rate is above average. The PPF account can be extended in blocks of 5 years (whether you continue to contribute or not) and investments made during the extension are tax-deductible.
There are many more investment options available to senior citizens, but these options are preferable due to lower risk and comparatively higher interest rate (however, there are more profitable options, which we will cover shortly).
After all, one important thing you have to keep in mind is that the biggest expenditure in the savings of senior citizens is due to sudden medical expenses. If you are helping your parents to secure their future, you should also consider investing in an effective health insurance plan with maximum coverage for them. This expense proves to be correct later on. You can follow this smart approach so that you do not have to make premature withdrawals from any of your schemes.
