In today’s uncertain world, having a steady income stream is crucial for financial security and peace of mind. Guaranteed income plans are insurance products designed to provide a stable income to individuals during their retirement years or for a specific period.
Key takeaways
- Annuities are insurance contracts that can provide a guaranteed income for life through a lump sum investment or premiums paid pay over time.
- NPS is a great investment option for retirement.
- Fixed deposits are a fairly popular choice among retirees. Not surprising as the deposits are safe, secure and offer greater flexibility in terms of tenure.
- Mutual funds are another great investment option to fall back on your retired life.
- SCSS is a must-have in a retirees’ portfolio as it is robust and safe, with long-term savings prospects.
These plans offer a combination of insurance and investment benefits, making them a popular choice among risk-averse investors. Read ahead to learn some options that you can consider for your guaranteed income.
7 Best Guaranteed Income Plans
India offers several reliable, guaranteed income plans that cater to different financial needs and risk appetites. Below mentioned are the seven best guaranteed income plans for 2023.
Purchase Annuities
Annuities are insurance contracts that can provide a guaranteed income for life through a lump sum investment or premiums paid pay over time. Apart from generating a constant cash flow, these plans are safe from market-linked volatility and offer tax exemptions as well as death benefits. There are two types of plans (Immediate Annuity and Deferred Annuity). An immediate annuity starts making payments within one month of the investment. In the deferred plan, the amount is accumulated, and the payouts take place at a later date chosen by the investor. You can pick a scheme that meets your specific needs.
Eligibility: Anyone with a lump sum amount available for investment can purchase annuities.
Features & Benefits:
- Annuities are insurance products that offer a regular income stream for a lifetime or a specified period.
- They provide protection against longevity risk, ensuring a steady income during retirement.
- Annuities can be customized to suit individual preferences, offering options like immediate or deferred annuities.
- Some annuities offer the potential for market-linked returns, while others guarantee fixed payouts.
- The income received from annuities may be partly taxable, depending on the payout structure.
National Pension System (NPS)
This government-regulated scheme is a great investment option for retirement. The big plus of NPS is that you can invest anything from ₹500 per month to ₹1.5 lakhs per year. And yes, the pension scheme provides tax benefits over and above ₹1.5 lakhs. Also, the subscriber can withdraw a partial amount of the corpus on retirement while the remaining sum gets paid out as regular monthly income.
Eligibility: NPS is open to all Indian citizens aged between 18 and 65 years. It is mandatory for government employees and voluntary for others.
Features Benefits:
- It offers two investment choices: Tier-I and Tier-II accounts. Tier-I is locked until retirement, while Tier-II allows partial withdrawals.
- Subscribers can choose from various investment options, including Equity, Corporate Bonds, and Government Securities.
- NPS offers tax benefits under Section 80C and Section 80CCD(1B) of the Income Tax Act.
- The scheme provides an option to choose between a lump sum withdrawal and annuity payments after retirement.
Bank Fixed Deposits
Fixed deposits are a fairly popular choice among retirees. Not surprising as the deposits are safe, secure and offer greater flexibility in terms of tenure. Seniors can spread their funds across different maturities. This not only provides them liquidity but also takes care of the re-investment risk. The interest rates for FDs have been dipping over the years, but senior citizens get an extra 0.25 – 0.5 percent per annum, depending on bank to bank.
Eligibility: Bank fixed deposits are available to all Indian residents, including minors and Non-Resident Indians (NRIs).
Features & Benefits:
- Fixed deposits offer a guaranteed return on investment and are considered low-risk financial instruments.
- Tenure options can range from a few months to several years.
- Interest rates are fixed at the time of deposit and remain unchanged during the tenure.
- FDs offer premature withdrawal options, but they may attract penalties.
- The interest earned on FDs is taxable, and Tax Deduction at Source (TDS) is applicable.
Mutual Funds
Mutual funds are another great investment option to fall back on your retired life. They have the potential to create an impressive corpus via the power of compounding in the long run. Also, some allocation via Systematic Investment Planning (SIP) is a good idea, especially for those who do not know the financial markets. The SIP route assures good returns and averts any possible losses due to market fluctuations.
Eligibility: Mutual funds are open to all Indian residents, NRIs, and foreign investors, subject to certain regulations.
Features & Benefits:
- Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or both.
- They offer various categories, such as equity funds, debt funds, and hybrid funds, catering to different risk profiles.
- Systematic Investment Plans (SIPs) allow investors to invest a fixed amount regularly, promoting disciplined investing.
- Mutual funds offer the potential for higher returns compared to traditional investment options.
- However, mutual funds are subject to market risks, and returns are not guaranteed.
Senior Citizens Savings Scheme (SCSS)
SCSS is a must-have in a retirees’ portfolio as it is robust and safe, with long-term savings prospects. The investment scheme is open to anyone 60 years. It offers an interest rate of 7.4 percent, compounded quarterly. SCSS has a starting tenure of 5 years which can be extended by 3 more once it matures. You can deposit anything between ₹1,000 to ₹15 lakhs. It must be noted that interest earned under SCSS is subject to taxation under Section 80C.
Eligibility: The SCSS is exclusively available to Indian senior citizens aged 60 years and above.
Features & Benefits:
- SCSS is a government-backed scheme aimed at providing financial security to senior citizens.
- The maximum investment allowed is ₹15 lakhs, and the tenure is five years, extendable for an additional three years.
- It offers a higher interest rate compared to other fixed-income instruments, making it an attractive option for retirees.
- SCSS offers regular quarterly interest payments, providing a steady income stream.
- Investments in SCSS qualify for tax benefits under Section 80C of the Income Tax Act.
Public Provident Fund (PPF)
The Public Provident Fund is a time-tested and popular investment avenue for risk-averse investors. It combines safety with attractive returns and tax benefits. As of 2023, the PPF offers a guaranteed interest rate that is usually higher than other fixed-income instruments. The minimum investment tenure is 15 years, making it an ideal choice for long-term financial goals, such as retirement planning or children’s education.
Eligibility: Any Indian citizen can open a PPF account, regardless of their age can apply for PPF.
Features & Benefits:
- The PPF scheme has a lock-in period of 15 years. However, investors have the option to extend the tenure in blocks of 5 years after the initial 15-year period is completed.
- Contributions made to the PPF account are eligible for tax deductions under Section 80C of the Income Tax Act, providing investors with tax benefits of up to ₹1,50,000 in a financial year. Additionally, the interest earned and the maturity amount are entirely tax-free.
- The interest rate on PPF is declared by the government and is subject to change from time to time. Historically, PPF has offered attractive interest rates that are generally higher than those offered by most fixed-income investment options.
- The PPF scheme is a government-backed initiative, which means the investment is entirely safe and secure. It provides a reliable option for risk-averse investors.
Fixed Deposits (FDs)
Fixed Deposits remain a popular choice for investors seeking guaranteed returns. Banks and NBFCs offer fixed deposit schemes with predefined tenures and interest rates. While the interest rates may vary, these deposits offer a fixed return on the invested amount, making them a reliable option for conservative investors.
Eligibility: Any resident individual, whether employed, self-employed or retired, can open an FD account with a bank or financial institution.
Features & Benefits:
- One of the key features of an FD is its flexible tenure options. Investors can choose the duration of their FD, which can vary from a few months to several years. Longer tenure FDs often offer higher interest rates.
- The interest rate offered on FDs remains fixed throughout the tenure, ensuring that investors know exactly how much they will earn at maturity. This predictability makes FDs a reliable investment avenue.
- FDs are considered low-risk investments since they are not subject to market fluctuations. The principal amount is protected, and investors are assured of the promised returns upon maturity.
- Investors can nominate a family member who will receive the maturity amount in case of the depositor’s unfortunate demise.
- Many banks and financial institutions offer the option of automatic renewal at maturity. This means that if the investor does not withdraw the amount at maturity, the FD will be renewed for another term with the prevailing interest rate.
Wrapping Up
It is crucial to consider your financial goals, risk tolerance, and retirement needs before choosing the most suitable plan for you. Always consult a financial advisor to make informed decisions and create a robust financial plan for a secure and prosperous future.
