Now a days many young folks comes to me asking about how can they invest the retirement carpus of the parents to the schemes where there are minimum or no risk and ensure the monthly income needs are met? It is good that you want to assist your parents in their money decisions. At the same time, you need to be cautious while handling their investments.
Today, interest rates have fallen to 4.5-5% on a Fixed Deposit (FD) in national banks, if your monthly income needs is around 50k a month then you will have to put around 1.1 crores into FD to make Rs. 50,000 a month.
In this post I am going to describe different options which are available and provide better post tax returns for senior citizens.
1. Pradhan Mantri Vaya Vandana Yojana (PMVVY): Pradhan Mantri Vaya Vandana Yojana (PMVVY) was launched in May 2017 to provide a long-term income option for senior citizens. This pension scheme, supported by the Indian Government, tackles one’s need for post-retirement financial preparation under National Savings Schemes. Individuals more than 60 years of age can avail this scheme and the scheme has now been extended for a further period of three years beyond 31 March 2020 until 31 March 2023. This scheme is operated by LIC and current interest rates offered around 7.4% annually with sovereign guarantee and no credit risk.
But this is limited to 15 lakhs per person, if your both parents are senior citizen, they both can invest 15 lakhs each and earn around INR 18,500 per months or around 2.2 lakhs per year.
2. Senior Citizens Savings Scheme (SCSS): SCSS offered by India Government is open to senior citizens 60 years of age and above. It also allows individuals who are 55 or above, who have opted for VRS or superannuation to park their retirement carpus.
An individual of the Age of 60 years or more may open the account. However, if an investor of the age of 55 years or more but less than 60 years has retired on superannuation or under VRS can also open account subject to the condition that the account is opened within one month of receipt of retirement benefits. This is a government backed scheme and hence very safe, the current rate of interest is 7.4%; again this scheme is limited to 15 lakhs per person and jointly becomes 30 lakhs.
These both the above options (SCSS and PMVVY) are comes under cash flow instruments, in simple terms that they pay you back every quarter or half yearly even if you don’t need and returns from both the scheme are taxable and will be taxed as per existing tax laws. These 2 offers highest level of safety to the capital with no credit risk, but what after that, if you still have more money to invest in.
Next best option which is available which offer you highest level of next return and safety are RBI floating rates bonds
3. RBI floating rates bonds: They are floating in the sense of they float along with the National Savings Certificate(NSC) rate, which is currently 6.8% and you get 35 basis point more i.e. 6.8 + .35 = 7.15% annually and as every quarter when the NSC rates are revisited bonds rates will also change.
The good news is that there is no limit for investing into RBI bonds, but before investing into RBI bonds you should take care of your monthly income needs.
4. Post office monthly income schemes (POMIS): Post offices offer MIS where you do not need to be a senior citizen to invest. Post Office Monthly Income Scheme (POMIS) is one such scheme, Under this scheme, investors are paid interest monthly the Government of India notifies the interest rate for the scheme every quarter. An investor can invest a maximum of INR 4.5 lacs in a single account or INR 9 lacs in a joint account.
Note: Please note the interest rate remains constant for the tenor of the deposit/investments (irrespective of any changes in the interest rate by the Government in the subsequent years).
The below tables summarizes more details about these scheme.
Here are the latest small saving schemes as on 31-12-2021.
Public Provident Fund (PPF) and National Savings Certificate (NSC) will continue to carry an annual interest rate of 7.1 per cent and 6.8 per cent, respectively. One-year term deposit scheme will continue to earn an interest rate of 5.5 per cent, while the girl child savings scheme Sukanya Samriddhi Yojana account will earn 7.6 per cent.
The interest rate on the five-year senior citizens savings scheme would be retained at 7.4 per cent. The interest on the senior citizens' scheme is paid quarterly.
Interest rate on savings deposits will continue to be 4 per cent per annum.
Term deposits of one to five years will fetch interest rate in the range of 5.5-6.7 per cent, to be paid quarterly, while the interest rate on five-year recurring deposits will earn a higher interest of 5.8 per cent.