Are you looking for the best investment options for senior citizens in India?
Googling this will lead you to hundreds of investment options. But which of these are the best investment options for senior citizens?
To find out, let’s analyse your investments post 60 years of age.
As you turn 60 years of age, there is a drastic change in your lifestyle. If you are a working professional, you might retire or seek a non-regular means of earning. You could be less aggressive when it comes to career development and more inclined toward taking small breaks. You might want to relax and spend more time with your family.
You have earned and accumulated wealth all your career. As your regular income stops, your capacity to take risks decreases to negligible levels. This is because you need to sustain your investments made between 30 to 60 years of age for your entire retired life. Therefore, your principal amount needs to be secure from risks.
With a lower risk appetite, you can choose debt investments which do not pose any risk to your principal. But, how do you choose these investments?
Your risk appetite for investments considerably declines as a senior citizen. Therefore, the risk profile is one of the most important factors when selecting the best investment options for senior citizens.
You need to stick to low-risk investments since your principal amount is all you have got for your retired life. These investments fall in the debt and cash category.
Popular low-risk investments for senior citizens are the Senior Citizens Savings Scheme (SCSS), Fixed Deposits (FDs), tax-free bonds and debt mutual funds.
Low risk in the form of fixed return and security of principal is one of the major aspects of these investments. Further, even under these schemes, the level of risk may vary from one investment to another. For example, investing in a debt mutual fund can be comparatively riskier than investing in a fixed deposit or SCSS.
Therefore, you can choose the investment that would suit your risk appetite in the best way possible.
Imagine you wish to go on a short trip to your favourite destination, but your investment’s maturity period is still three years away. Yes, that can happen if you invest your entire retirement corpus in a single investment like an FD.
You need to be careful about the maturity period of investments before investing in different instruments with different maturity periods.
Investing your entire retirement corpus in a single investment might not help. It would be better to choose investments that give returns in the form of fixed income.
As a senior citizen, you might have several short-term goals, like vacationing to your favourite destinations. Other short-term goals include buying a car, spending for your grandchildren and more.
For these goals, you must invest in schemes with a short-term maturity period. This goal-based financial planning can be done better with investment in debt mutual funds.
Being a senior citizen has a set of advantages. One of them is special interest rates for seniors. Yes, a few investments offer special returns to senior citizens. For example, fixed deposits have special interest rates for senior citizens. As the fixed deposit interest rate differs from one bank to another, so do the senior citizen interest rates.
Apart from the special interest rates, there is a specific investment scheme for which only senior citizens are eligible. This is the SCSS scheme available through post offices. The SCSS scheme is valid only for senior citizens and guarantees an assured income for the entire investment tenure. You can invest a maximum of ₹15 lakh in this scheme for a maximum of five years tenure.
Therefore, you can look for schemes that offer more returns or specific investment plans for senior citizens.
Consider you have created a sizeable retirement corpus that would be enough for your entire retired life. Are you going to keep all of it in a liquidity-ready form? Investing the most amount of money in different investments would be better.
Also, senior citizen-specific investments have a maximum individual investment limit. For example, SCSS has a maximum investment limit of ₹15 lakh.
What if you have invested all your retirement money and suddenly go through a medical emergency? For any best investment plan to be best for senior citizens, it needs to account for emergencies.
It’s better to keep some percentage of your retirement money as an emergency fund. You should be able to convert this fund into cash should there be an emergency.
A suitable investment for this can be a liquid fund. These funds can be easily converted into cash in a short period of one working day. Liquid funds are debt-based funds. Therefore, the risk level is lower than in equity-based mutual funds.
Different investments are taxed differently. For example, for mutual funds, Long Term Capital Gains (LTCG) tax would apply for investments of more than a year.
On your fixed deposit, Tax Deduction at Source (TDS) would apply for the interest of more than ₹10,000 in a financial year. In a financial year, interest earned on your fixed deposit is ₹30,000. Your TDS on your return would be ₹3000 (10% of ₹30,000). Therefore, you will get ₹27,000 as an interest payment.
For SCSS also, you will be taxed on your returns and maturity amount.
To avoid taxes as a shocker, it is better to know your tax implications on investments before making them.
So, you kept your retirement corpus in investments with different maturity periods. For example, you invested in a fixed deposit for five years and SCSS for five years.
Now, if you had to withdraw your investments before their maturity, you would have to pay a certain penalty. Say, for early redemption of SCSS, you won’t be able to redeem your investments one year from the date of deposit. After one year, you can prematurely withdraw your SCSS investment with a penalty of 1.5% between one to two years and 1% for withdrawal between two years to one day before maturity.
You must consider the penalty for premature withdrawal of your maturity-based investments.
Lastly, the best investment options for senior citizens can be found based on a sound financial plan. For this, it is important to seek financial advice from a certified and authorised financial advisor.
Investment plans based on hearsay of friends, relatives and peers can often lead to faulty and biased investment decisions. After your financial plan is in place, you can use the Fi money app, invest in short-term and long-term deposits, or start your SIP (Systematic Investment Plan).
Checking if your investments are in-sync with your short-term goals and emergency needs is essential. You can compare investments based on their risk profile, maturity period, penalties, returns and tax implications of investments. Investing after considering these aspects ensures that you make informed investment decisions as senior citizens. It also makes it easier to select the most suitable investment options for senior citizens.
There can be various senior citizen investments with different risks and returns. Generally, all low-risk investments are debt-based. In these investments, the interest rates are fixed, and the tenure is pre-defined. For example, in SCSS, the investment tenure is five years, and the returns are fixed at 7.5% per annum. This is one of the highest return-giving, low-risk investments for senior citizens.
There are no schemes that can promise to double your money. You need to take a higher risk to earn higher returns through investments. High-risk investments include equity or equity-based investments. For these investments, a longer horizon is better because, in the short run, they face more market volatility. The proportion of equity-based mutual fund investments can decline with age as your appetite for risk declines.
Generally, a 65-year-old can invest in low-risk debt and debt-based mutual funds. This investment can offer stable short-term returns with low risk on your principal. It is important to consider low-risk investments as a senior citizen because you depend on your retirement corpus for all your retired life.
Use Smart Deposits to invest in short-term and long-run deposits or start s SIP using the Fi money app now.
Fixed Deposits are the more typically preferred mode of investment among senior citizens. While the minimum and maximum investment for FDs vary between banks, the FD interest rate ranges between 3 - 7%. Senior citizens get up to 0.5 % additional rate on their FDs.
Individuals who open an SCSS account earn an interest on the principal amount deposited at the rate fixed by the government. They receive a quarterly interest against their deposited amount. Interest payment will be credited to an individual's account on the first date of April, July, October, and January.