In a recent announcement, RBI (Reserve Bank of India) set the savings deposits rate between 2.7-3%, and term deposits rate (exceeding one year) between 4.9-5.5%. Amid constantly lowering interest rates, a major class of senior citizens and those approaching retirement might find it hard to sustain. It does not help that Indians give the least preference to retirement planning, as per the PGIM India Retirement Readiness Survey 2020.
Around 51% of Indians who took part in this survey mentioned that they had no financial planning in place for retirement. And at a critical time like this, with rising health expenses and decreased financial reliance on children, it is important to make the most of your retirement corpus, your only source of income. There are many schemes you can invest in as an alternative and earn higher returns than bank FDs minus high risks.
1. Senior Citizens Savings Scheme
Schemes like the Senior Citizen Savings Scheme (SCSS) are suitable for those looking for a high fixed rate of return that beats inflation (currently at around 6%) and promises a regular stream of income. With the current SCSS interest rate set at 7.4%, it stands higher than what bank FDs have to offer. Also, while the interest so received is taxable, the amount deposited under this scheme is deductible under Section 80C. If you are over 60 years of age, you can open a single or joint account with your partner. The minimum amount cap is also set very low at Rs 1,000, with an initial tenure of five years and one-time extension of three years. However, your total amount invested should not exceed Rs 15 lakhs.
2. Pradhan Mantri Vaya Vandana Yojana
Apart from this, the Pradhan Mantri Vaya Vandana Yojana (PMVVY) is also a viable option, since it offers a guaranteed pension rate of 7.4% on a monthly basis for a period of 10 years. The scheme has already been extended upto 31st March 2023, with the entry age being 60 years. You can choose your payout period, be it quarterly, half-yearly or annually. PMVVY comes with no tax benefits, however, is a better investment option from a liquidity standpoint, since 75% of the deposited amount is available as loan post three years, with any unpaid loan amounts being adjusted against the principal. Withdrawal deductions are also set at 2% before 10 years, in critical cases like medical emergencies and more.
3. Post Office Monthly Income Scheme
At a slightly lower rate of 6.6%, you can also avail the Post Office Monthly Income Scheme, which has a tenure of 5 years and an investment cap of Rs 4.5 lakh for single account holders. However, it is important to remember that this scheme, like PMVVY, also does not offer any tax benefits.
4. RBI Floating rate savings BondsIf you are looking for a free-hand in terms of age and investible amounts, RBI floating rate savings bonds are a good option. With a seven-year tenure, post which the bonds are redeemed at face value, the interest rate keeps varying bi-annually. The coupon rate for the first coupon period, payable on January 1, 2021 was fixed at 7.15 percent. However, the coupon rate is linked 0.35% higher than that of NSC (National Savings Certificate), which, as of 1st April, 2021, stod at 5.9%. Here is how premature redemption for floating bonds looks like:
|Age Group||Time period for redemption|
|60-70 years||Last year of bond tenure (7 years)|
|70-80 years||Anytime after 5 years|
|Above 80 years||Anytime post 4 years|
5. Conservative funds
You can also consider conservative funds, which come with an asset allocation approach of 85-90% debt and 5-10% equity, aiming majorly at capital preservation. Since there is exposure to high-quality stocks, low-risk investors get an opportunity to earn better returns as compared to investing in a pure debt fund. Further, these funds are also ideal for investors who wish to have regular returns as well as those with long-term financial goals with lower risk tolerance.
Viral Bhatt, founder, MoneyMantra, a Mumbai-based personal finance advisory, suggests diversification and liquidity in retirement corpus. “It is best to decide on various investment options after looking at your taxable income and after factoring in interest income from various investment sources. One should try to keep these investments below the exemption limit