INVESTMENT OPTIONS FOR RETIREES
FALLING INTEREST RATES
This article was originally published on 07.08.2017 . Hence the rates would have since undergone changes mostly downwards . For the latest interest rates , CLICK HERE
Normally a retiree , who is dependent on the income derived from his retirement benefits , looks for a safe and secure investment . Bank deposits are most popular investment plans as they assure good returns with safety of investment . But in last many years , the deposit interest rates of the banks have shown steady decline . For example , State Bank of India which was offering 9.25 % for senior citizens in November 2013 , is now offering only 6.75% for a 10 year deposit for a senior citizen . The prospect of regaining old interest rate back in foreseeable future is bleak in the current economic environment . As inflation is held steady in recent years , clamoring for lowering the interest rates is growing from both government side and corporate side . The lower interest rate is , of course good for the economy and benefits many sections of the society as it also induces growth . But in this overall good scenario , one section badly hit is of the Retirees and senior citizens who fall back on income derived from the retirement benefits they would have got at the time of their retirement .
Take the case of Mr Suresh , a non-pensioner retiree who retired in 2012 , with terminal benefits of Rs 50 lakhs say ( Most of the retirees would not have received so much of amount ) . For Mr Suresh , it was the first time he was dealing with such such a big amount . So he preferred safe and secured investment of his "big " money , which he had seen first time in his life and naturally invested the entire amount with a public sector bank . The bank offered him an interest rate of 9.75 % pa which fetched him a monthly payment of Rs 40,000 . The amount was not only sufficient for him to pay rent of Rs 10,000 per month , run monthly expenses of Rs 20,000 and around Rs 5,000 for other miscellaneous expenses including tax payable of and a savings of Rs 5,000 . So he was happy and content with his financial status .
After a year in 2013 , Rent became Rs 10,500 as Rent agreement had a clause of 5 % annual increase . With inflation rate of 10 % , his expenses grew to Rs 22,000 per month . he managed to contain his miscellaneous expenses to Rs 5,000 . Still he could manage to save Rs 2,500 per month .
In 2014 , Rent became Rs11,000 , family expenses became Rs 23, 300 with an inflation of 6 % . he tightened the belt and continue to manage his miscellaneous expenses with Rs 5,000 only . But now his savings were paltry Rs 700 per month only . But still he could live within his income .
In 2015 , rent became Rs 11, 500 , family expenses grew to Rs 24, 500 and savings turned negative of Rs 1, 000 and the shortfall he financed from the savings he had in 2013 .
In 2016 , rent became Rs 12,000 , family expenses grew to Rs 25,700 and monthly shortfall grew to Rs 2,700 month . Most of his savings in 2013 and 14 were utilized towards the shortfall . He could manage .
Now , when Mr Suresh went to the bank to renew his deposit , shock was awaiting him . Bank manager told him that interest rate is just 6.75 % and he would get a monthly payment of Rs 28,000 only . Mr Suresh is in a dilemma now whether to renew and if renewed how to manage both ends . He is also looking for other avenues to shift his investment for better yield .
Now what are the avenues open to Mr Suresh ? . He doesn't want to risk his money with investment in doubtful / shady concerns who promise him a very high return . He wants both safety of capital and a reasonably good return to manage his household .
We are trying to explore possible alternatives and listing out the options available , keeping safety of capital as prime concern .
HEALTH INSURANCE OPTIONS FOR RETIRED BANKERS
The article explores the alternate avenues for existing health insurance group policy for Retired Bankers
TO READ THE ARTICLE CLICK HERE
GOVERNMENT BACKED INVESTMENT AVENUES
SENIOR CITIZEN SAVINGS SCHEME ( SCSS ) :
The scheme is operated by Indian post and available in post offices throughout India . A senior citizen can invest a maximum of Rs 15 lakhs in the scheme . Maturity after 5 years with an interest of 8.3% quarterly compounded and interest payable quarterly .
LIC VARISHTA BIMA YOJANA 2017
The scheme is operated by Life Insurance Corporation of India . The scheme is for 10 years and fetches interest rate of 8 % pa . Interest in form of pension is payable monthly . A maximum amount of Rs 7.5 lakhs can be invested by senior citizens .
GOI 8% ( TAXABLE ) BOND 2003 ( The scheme is closed for subscription since 2.01.2018 )
The bonds issued by reserve Bank of India and are sold through SBI , Nationalised Banks and few private sector banks like ICICI , HDFC etc . Bond is issued for a period of 6 years . As name suggests , interest rate is 8 % taxable . One can receive interest annually or at the time of maturity .
NATIONAL SAVINGS CERTIFICATE :
The scheme is operated by Indian post and available in post offices throughout India . Investment in the scheme gets tax rebate under 80 c of the income tax act . Scheme is for 5 years . Interest at 7.8 % pa and payable only on maturity .
TIME DEPOSIT ACCOUNT WITH POST OFFICE :
One can deposit any amount and a deposit of 5 years fetches interest of 7.6 % with annual payment of interest
MONTHLY INCOME SCHEME OF INDIAN POST ( MIS )
The scheme is operated by Indian post and available in post offices throughout India . One can invest a maximum of Rs 4.5 lakhs in the scheme . Maturity after 5 years with an interest of 7.5 % pa with monthly payment of interest .
KISAN VIKAS PATRA ( KVP )
The scheme is operated by Indian post and available in post offices throughout India . The scheme is for 115 months and 7. 5% pa and payable only on maturity .
BANK FIXED DEPOSITS
Interest Rates for fixed deposits vary bank to bank . Public Sector Bank State Bank of India was found to offer 6.75 % pa for a senior citizen's deposit for 5 years while private sector bank ICICI Bank was found to offer 7% pa for similar period . While smaller Public sector bank , Vijaya bank offered 6.75 % for similar deposits , small Private sector bank RBL offered 7.85 % pa . Most of the banks were paying in between 6.5 % pa to 8 % pa for a 5 year deposit
FOR LATEST FD RATES , CLICK HERE
NBFC / CORPORATE DEPOSITS
Some of the reputed Non- Banking Finance companies like Shriram transport finance , Bajaj Finance , Mahindra & Mahindra Finance are offering between 7.65 % pa to 8.10 % for a deposit for 5 years .
DEBT MUTUAL FUNDS
Mutual Funds do not guarantee any fixed return or safety of capital , unless they are capital protected funds . Any how return is not guaranteed . Some of the capital protected funds have yielded earlier around 6 % to 13 % . Some of the top ranked debt mutual funds had also yielded around 11 % pa in last three years
MR SURESH'S DECISION :
Mr Suresh did not consider other investment avenues of shares and equity mutual funds , as capital is at risk in the investment . Similarly he did not want to invest his money in high yielding deposits with private companies / individuals . He didn't want to invest in gold or real estate as they would neither fetch regular income nor offer safety of capital .
Now for Suresh ,whatever the decision he takes for optimizing tax benefit , return and safety , his investment income is bound to be lesser than what he was getting with the bank at 9.75 % . He has to reduce his expenses to manage his finance .
Readers are free to offer suggestions to Mr Suresh for better returns .
TO KNOW ABOUT TAX ON RETIREMENT BENEFITS , CLICK HERE
TO KNOW ALL ABOUT IT RETURNS , CLICK HERE
HOW TO LINK AADHAR TO PAN ? CLICK HERE
PLAN YOUR FINANCE PRUDENTLY . For Financial Planning , CLICK HERE
FIXED INCOME PLANS PRECAUTIONS WHILE INVESTING IN STOCK MARKET
FOR INCOME TAX NEWS CLICK HERE FOR NEWS ON INTEREST RATES CLICK HERE
No content on this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is a points of view of the author , and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments. Point of view expressed by the author is solely of the author and not of the website .
RETIRED DEPUTY GENERAL MANAGER , INDIAN OVERSEAS BANK