Fixed income schemes are a good choice as it would minimise losses or reduce financial constraints
If you are thinking about investment in 2021, it is better to go for low risk- or risk-free investment options. Financial security must be of prime importance as the pandemic which started at the beginning of 2020, led to the worst global recession and financial crisis since The Great Depression of the 1930s.
Senior citizens have to choose their investment plans carefully to ensure secure earnings without incurring losses. A falling interest rate in 2020 has already reduced the interest earnings.
For most individuals in the age category of 60 years and above, their resources mostly consist of post-retirement pension or the earnings from their working days. Fixed income schemes are a good choice as it would minimise losses or reduce financial constraints.
Investment options with zero or low risk:
– Senior Citizens’ Savings Scheme (SCSS) – This scheme has government support and the interest rate is one of the highest among the available small savings schemes. The minimum amount invested can be INR. 1000 and the maximum tenure is less than 10 years.
– Senior citizens fixed deposit – The interest on these fixed deposits is generally 0.5 percent higher than normal rates. Some private and nationalized banks have an option of Special Senior Citizen Bank FD scheme, where the interest is more than 0.5 percent. Fixed deposit schemes are also available at the post office which has a very low chance of default.
– Recurring deposits – It is a term deposit scheme offered by both banks and post offices. In this process, a fixed amount gets deposited to the recurring deposit account every month and generates an earning in the form of interest at the end of the term. The rate of interest is the same as that offered on the fixed deposits.
– Post Office : Monthly Income Scheme (Post Office MIS): This government scheme has a lock-in of 5 years and higher interest rates than fixed deposits. It is a safe and hassle-free option and can be operated through a single or joint account.
– Immediate annuities– Investing a lump sum under this plan would provide you with a guaranteed income/pension with flexible payouts. This plan is provided by life insurers and there are options of a lifetime pension, transfer of pension to the spouse after death, or withdrawal of the lumpsum, and accumulated returns.
Investment options with medium to a high amount of risk:
If you are willing to take a risk in exchange for high returns, you may consider investing in the below options. However, these plans would not provide instant liquidity and there may be some penalty for premature withdrawals.
– Tax-free bonds – The income from these bonds is 100% tax-free and are issued by government-backed entities for different projects. The tenure is usually for 10, 15, or 20 years and there are guaranteed repayment and interest rates.
– Debt funds : are a type of mutual fund and would be suitable if you prefer fixed income investments to stay safer. Long term debt funds are better as they can give back higher returns (sometimes as high as 15%) if the market performs well.
– National pension scheme (NPS) – You can decide the proportion of funds to be invested in the equity and debt fund category according to your preference. There is no provision of fixed or steady interest rates but there can be higher returns from equity. Post maturity, a portion of the funds must be invested in an annuity or monthly pension scheme.
– Insurance policies – Investing a part of the funds in life insurance policies like Unit Linked Insurance Plans (ULIP) or endowment plans can be a good option. You can get back the invested amount at the end of the policy term. Go for plans with minimum charges and look for the hidden charges before investment.
– Mutual funds – Specially designed for senior citizens, there are retirement plans under this category. ELSS is a special type where there is a higher provision of tax exemption. For equity mutual funds, there are large cap funds linked with low risk. Mid-cap and small-cap funds have high risk but provide higher returns. There are different tax slabs associated with the period and amount of investments. The period of investment can be less than a year.
Important Points to consider before investment
Go for a little bit of research or speak to financial advisors, friends, or family members who would provide genuine suggestions.
– How much to invest in high return categories?
The ideal combination for the older generation can be a combination of investments in both low and high-risk categories. This would ensure fixed amounts of returns on one hand and moderate to a high amount of wealth creation on the other. You should invest the major portion in the low-risk category unless you have a very strong financial backup.
– Deciding on the tenure of investments
You should preferably invest the major portion of your resources in short-term or medium-term investments with a duration of 6 months to 3 years. Locking up all your investments for the long term would not be a good option as you may need to withdraw funds in case of emergency. This would be applicable in the case of fixed and recurring deposits in banks.
The interest rates are currently very low and according to industry experts would not rise immediately at least in the first half of 2021.
– Choosing a specific plan based on interest rates
Compare the rates of return on various available fixed income plans having the same duration to get maximum benefits.
– Look for tax benefits
Before investing in any scheme, take care to go through the features like tax exemption, tax slabs, and charges involved to maximize your savings.
To enjoy a secured financial position and relaxed retired life, plan your investments properly, and safeguard your existing resources. Some people may dupe you with false promises as they seek out retired people with a substantial amount of resources but having a limited idea about investment schemes. So, be sure to double check the background and credentials of the people you trust with your money.