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5 Best Investment Options for Senior Citizens in India

Want to plan your retirement with the best options available in the market? Read this blog to know your investment options.

  • 2,802 Views | Updated on: Jan 15, 2024

Retirement is a major life transition that can be both exciting and daunting. For senior citizens, it is important to have a solid financial plan in place to ensure that they can live comfortably and securely in their golden years. There are a number of best investment options available to senior citizens, each with its own set of benefits.

Key Takeaways

  • ULIPs are a viable means of wealth creation for senior citizens, providing a combination of investment and insurance benefits.
  • SCSS is a popular savings avenue among retirees due to its attractive features and benefits.
  • The Post Office Monthly Income Scheme (POMIS) is a popular savings scheme offered by the Indian Postal System.
  • The Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a government-backed pension scheme launched with the aim of providing regular income to senior citizens in India.

Government offers a number of schemes that can help you plan your retirement easily. It can assist you in saving money, generating income, and protecting your assets. This blog will discuss the best investment options available in the market for planning retirement, along with their rate of interest, investment amount, eligibility, and tenure.

Best Investment Options for Senior Citizens in India

Senior citizens in India have several investment options available to them, depending on their financial goals, risk tolerance, and income requirements. Here are some popular investment options for senior citizens in India:

United Linked Plans (ULIPs)

ULIPs can indeed be a viable means of wealth creation for senior citizens, providing a combination of investment and insurance benefits. However, it is important to consider various factors before investing in ULIPs, such as eligibility, rate of interest, and tax implications.

Eligibility

The eligibility criteria for investing in ULIPs vary among different insurance companies. Senior citizens who are above a certain age (usually 60 years) can invest in ULIPs. Some insurers may have an upper age limit for purchasing a new ULIP policy, so it’s essential to check with the insurance provider for specific age-related guidelines.

Rate of Interest

ULIPs do not offer a fixed rate of interest like traditional fixed deposits. Instead, the returns are linked to the performance of the underlying investment funds chosen by the policyholder. These funds can be equity-oriented, debt-oriented, or a combination of both, offering the potential for higher returns but also subject to market risks.

Investment Amount

The investment amount for a ULIP can be chosen by the policyholder based on their financial goals, risk appetite, and capacity to invest. There is usually a minimum premium amount specified by the insurer, and the senior citizen can opt for regular premium payments or a lump-sum investment.

Tenure

ULIPs typically have a lock-in period, during which the policyholder cannot withdraw the invested amount. The lock-in period for ULIPs is usually five years as per the Insurance Regulatory and Development Authority of India (IRDAI) regulations.

Early Withdrawal

Early withdrawals are not allowed during the lock-in period (usually five years) except in the case of the policyholder’s demise. However, once the lock-in period is over, senior citizens can partially withdraw or surrender the policy, subject to the terms and conditions of the specific ULIP policy.

Tax Implications

ULIPs offer tax benefits under Section 80C of the Income Tax Act, allowing senior citizens to claim deductions on the premium paid, subject to a maximum limit. Additionally, the maturity proceeds from ULIPs are tax-free under Section 10(10D) of the Income Tax Act, provided the premium paid is within the prescribed limits.

Senior Citizens Savings Scheme (SCSS)

As individuals reach their golden years, financial security and stability become paramount. To cater to the financial needs of senior citizens in India, the government introduced the Senior Citizens Savings Scheme (SCSS). Launched in 2004, the SCSS is a popular savings avenue among retirees due to its attractive features and benefits.

Eligibility

An individual who has reached the age of 60 years or above on the date of opening an account. An individual with the age of 55 years or more but less than 60 years and has retired under Superannuation, VRS, or Special VRS.

Rate of Interest

The current interest rate for SCSS is 8.2% per annum (p.a.). The interest is paid quarterly.

Investment amount:

  • The minimum investment amount in SCSS is ₹1,000.
  • The maximum investment amount in SCSS is ₹15 lakhs.

Tenure

The SCSS account has a lock-in period of 5 years. The account can be extended for a further period of 3 years.

Early Withdrawal

Early withdrawal from SCSS is allowed only under certain circumstances, such as the death of the account holder, the permanent disability of the account holder, or the purchase of a house. If the account is closed prematurely, a penalty of 1% per quarter of the amount withdrawn will be levied.

Tax Implications

The interest earned on SCSS is taxable in the hands of the account holder. However, the investment amount in SCSS is eligible for deduction under income tax section 80C of 1961.

Post Office Monthly Income Scheme

The Post Office Monthly Income Scheme (POMIS) is a popular savings scheme offered by the Indian Postal System. It is designed to provide a reliable and regular source of income to investors, particularly senior citizens, and individuals seeking a safe investment option. With its attractive interest rates and flexible tenure, POMIS has garnered the trust of millions of investors across the country.

Eligibility

Any adult individual, either singly or jointly, can open an account. The scheme is also available to minors, but the account has to be opened on their behalf by a guardian or a parent.

Rate of Interest

One of the key attractions of the POMIS is its competitive interest rates. The interest rates are set by the government and are subject to change periodically. The interest rate was around 7.4% per annum. However, it is essential to check with the post office for the latest interest rates, as they might fluctuate according to market conditions.

Tenure

The tenure for this scheme is fixed at 5 years. Once you invest in the scheme, you cannot withdraw the entire amount until the completion of the tenure. However, there is a provision for premature withdrawals, which we’ll discuss later in the article.

Early Withdrawal

While the tenure of POMIS is fixed at 5 years, investors can opt for premature withdrawals under specific conditions. However, it is important to note that premature withdrawals are subject to penalties. If an investor withdraws the amount before the completion of one year from the date of investment, no interest will be paid, and the principal amount will be returned. If the withdrawal is made after one year but before the completion of 3 years, only the principal amount will be returned, and 2% of the deposit will be deducted as a penalty. After 3 years, the penalty reduces to 1% of the deposit amount.

Tax Implications

The tax implications of the POMIS are an essential aspect to consider. The interest earned through POMIS is taxable as per the investor’s income tax slab. This means that the interest income will be added to the investor’s total income for the financial year, and taxes will be levied accordingly. However, there is no TDS (Tax Deducted at Source) deducted on the interest earned.

Did You Know?

Even if an investor has not sold any shares, they may still be liable for taxes on the capital gains distributed by the fund.

Senior Citizen FD

As people approach their golden years, financial stability becomes a significant concern. After a lifetime of hard work and savings, senior citizens seek investment avenues that offer security, reliable returns, and easy access to funds when needed. In this regard, senior citizen Fixed Deposits (FDs) have emerged as a popular choice, offering attractive benefits tailored to meet the needs of the elderly.

Eligibility

As the name suggests, senior citizen FDs are specifically designed for individuals who have crossed a certain age threshold, typically 60 years or above.

Rate of Interest

One of the primary advantages of a senior citizen FD is the higher interest rates it offers compared to regular fixed deposits. Banks often provide an additional interest rate hike of 0.25% to 0.75% for senior citizens. These higher rates help retirees combat the impact of inflation and ensure their savings grow at a steady pace.

Tenure

The tenure or duration of a senior citizen FD can vary from short-term to long-term, typically ranging from a few months to several years. Investors can choose the tenure that suits their needs and financial goals. Longer tenures generally offer higher interest rates, while shorter ones offer greater liquidity.

Early Withdrawal

While senior citizen FDs offer excellent returns, unforeseen circumstances may require the premature withdrawal of the deposit. However, it’s essential to be aware of the terms and conditions regarding early withdrawals, as they may attract penalties or result in a reduced interest rate. In some cases, the interest may be recalculated at the prevailing rate for the actual duration of the deposit remaining with the bank.

Tax Implications

Senior citizen FDs are subject to tax implications based on the investor’s overall income and the prevailing tax laws. The interest earned on the FD is added to the individual’s taxable income under the head of “Income from Other Sources.” As a result, it is fully taxable at the individual’s applicable income tax slab rate.

Pradhan Mantri Vaya Vandana Yojana

The Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a government-backed pension scheme launched with the aim of providing financial security and regular income to senior citizens in India. The scheme was announced by the Government of India in May 2017. Let us take a closer look at the key features and benefits of this pension scheme.

Eligibility

The PMVVY is available to all Indian citizens aged 60 years and above. There is no maximum age limit to participate in the scheme, making it accessible to even the oldest senior citizens. The minimum age to join the scheme is 60 years.

Rate of Interest

One of the most attractive features of the PMVVY is its high-interest rate. The interest rate offered under this scheme is fixed for the entire tenure. The rate of interest is determined by the government and is subject to change periodically.

Tenure

The PMVVY offers a fixed tenure of ten years. This means that the policyholder will receive regular pension payouts for a period of 10 years from the date of purchase of the policy.

Early Withdrawal

The PMVVY allows premature exit from the scheme under certain specified circumstances. In the event of critical or terminal illness of the policyholder or their spouse, the policy can be surrendered prematurely, and the purchase price will be refunded. However, the surrender value will be lower than the purchase price, and the precise amount will be determined by the insurance company.

Tax Implications

Tax treatment is a crucial aspect of any investment, especially for retirees looking for tax-efficient income sources. Under the PMVVY, the pension income received is taxable as per the individual’s income tax slab. This means the pension amount will be added to the retiree’s total income and taxed accordingly.

Final Thoughts

As individuals enter their retirement years, it becomes crucial for them to choose the right investment options to meet their changing financial needs. The government offers various schemes in India that can assist senior citizens in planning their retirement effectively, ensuring savings, income generation, and asset protection. So, what are you waiting for? Get cracking and start investing in the right products right away. Taking action now will help build a financially strong foundation for your upcoming retirement.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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