In earlier times, senior citizens used to be dependent on their children for financial needs. But this is changing. Rising income, better investment opportunities, and financial awareness have made it possible for senior citizens to be financially independent. Many of them are able to fund their lifestyle using their savings and investment income. But with inflation, increasing longevity and rising cost of medical care, senior citizens should continue to look for avenues of income. The government provides some investment options and benefits for senior citizens. As a senior citizen, you should take advantage of the same so that you have financial independence. First, let us look at the investment options for senior citizens.
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Investment Options for Senior Citizens
Senior Citizens Savings Scheme
Eligibility – Persons equal or over the age of 60 can invest. Voluntary retirees can invest once they are 55 years old. One can open an additional account as a joint account with the spouse.
Investment Limit – Maximum of Rs. 15,00,000 irrespective of number of accounts.
Benefits – Current rate of interest is 8.5%. It is market linked based on 5-year government bond yield. Interest is paid quarterly. The interest rate is locked once the investment is done. Low-risk product. Premature closing of account is possible. Investment can be treated as the deduction under Section 80C.
Limitations – Interest rate might decline. Interest is taxable.
Senior Citizens Pension Plan (Varistha Pension Bima Yojana)
It is an annuity plan wherein payouts are made periodically to the policy holder.
Eligibility –Anyone who is 60 years or older can invest.
Investment Limits – Minimum – Rs. 63,960 and maximum of Rs. 6,39,610. The annuity is slightly higher if the frequency of payouts is monthly or quarterly.
Benefits – Returns are around 8%. Premium amount is refunded after 15 years, on death or diagnosis of critical illness/ disease. One can take a 75% loan against it after three years if purchase. Monthly pay-outs are possible. Premature withdrawal is possible though one has to pay a penalty. Amount received at maturity can be reinvested in POMIS.
Limitations – It is relatively illiquid compared to other options. The pension is taxable.
There are other pension plans available offered by private players. The annuity rate is lower but there is no upper limit on how much one can pay for an annuity. They are available for different durations and most of them do not allow premature surrender.
Post Office Monthly Income Scheme (POMIS)
Eligibility –Anyone who is 10 years or older can invest.
Investment Limits – Minimum – Rs. 1500 and maximum of Rs. 4,50,000 in the case of a single account holder and Rs. 9,00,000 in the case of a joint account.
Benefits – Fixed monthly interest rate – 7.7%. Monthly pay-outs are possible. Premature withdrawal is possible though one has to pay a penalty. The amount received at maturity can be reinvested in POMIS.
Limitations – Investment is not tax deductible. Interest earned is taxable. NRIs cannot invest in this product.
You should check this post to understand annuities – LIC Jeevan Akshay Review There’s specific reason we have not covered annuities in the best investment options for senior citizens in India – you may get a hint in Jeevan Akshay post.
Bank and Company Deposits
Bank FDs are the oldest and popular form of saving among senior citizens. One can invest money in company deposits for interest returns. The rate of interest is usually higher than Bank FD interest rates.
Eligibility –Banks are allowed to set the age limit for opening accounts. Most banks allow people, 10 years or older to open a sole account and a joint account if younger than 10 years.
Investment Limits – It ranges from Rs. 5000 to more than a crore depending on the bank/ company.
Benefits – Most banks offer interest rate up to 0.5% higher than normal fixed deposit rates to senior citizens. It ranges from 4%-8% for banks. Company deposits offer 8%-8.90%. Income is stable. Some corporate deposits offer higher returns to senior citizens.
(Pay a penalty. The amount received at maturity can be reinvested in POMIS.)
Limitations – Interest rates are going down. FDs will not be able to beat inflation. Company FDs carry higher risk. It is better to invest in companies rated AA and above. Interest earned is fully taxable based on the tax slab you fall under.
There are no specific mutual fund investment schemes for senior citizens. Depending on the risk appetite, senior citizens can invest some amount in Mutual funds. They can choose mutual funds that have a lower risk. Debt funds, liquid funds etc. that invest in commercial paper, bonds, government securities etc. Can also think of adding 20-30% of asset exposure to equity mutual funds based on risk profile.
Benefits – Well performing funds give returns that can beat inflation. They are managed by professionals so there is better management and less chance of losses. They provide capital appreciation. Monthly Income Plans give regular income too. One can withdraw money from Liquid funds very easily.
Limitations – Subject to market risks. Long term gains of Nonequity funds are subject to taxation of 20% with indexation. Short term gains (holding period < 3 years) are subject to the tax rate as per your tax slab.
Benefits Available for Senior Citizens
Investment Options for Senior Citizens in India are limited in India – other benifits are even lesser. Here are some of the benefits that you should take advantage of if you are a senior citizen –
- Tax benefits – There are tax exemptions and tax benefits provided to senior citizens.
– Tax exemption limit is Rs. 3,00,000 for people who are 60 years -79 years and Rs. 5,00,000 for people 80 years and older (super senior citizens).
– Under Section 80D which is for payment of premium on medical insurance, there is a deduction of Rs. 30,000 for senior citizens which is Rs. 5,000 more than that for non-senior citizens.
– Deduction of Rs. 60,000 is available to senior citizens and Rs.80,000 for super senior citizens under Section 80DDB unlike the usual Rs. 40,000 for others.
– Senior citizens can file form 15H so that TDS is not applicable for interest earned on FDs.
– Senior citizens who do not have business income are exempted from paying advance tax.
- Tickets – There are special offers for senior citizens when it comes to rail and air tickets. There is 40% concession in fares for men above 60 years and 50% concession for women above 58 years. People above 45 years will be allocated lower berths. Wheelchairs and separate counters in Passenger Reservation Areas are provided. There are special provisions for air travel as well. Air India provides a discount of 50% on economy class fare for travel within India to people who are 63 years or older at the time of boarding the flight. Currently Spice Jet is offering discount of 15% on base fare (until September 30, 2016) to citizens 60 years and older. This is valid for domestic travel.
- Other Facilities – Senior citizens need not fix an appointment for applying for a passport. They can walk-in and will be given preference in terms of waiting time. They are given discount in MTNL phone bills and priority hearing in high court. Some hospitals give discount on medical treatment for them.
Senior citizens deserve to be treated with compassion and concern and therefore some organizations and the government provide certain facilities to them so that their sunset years are easier. Please share if you have come across any other investment options for senior citizens – also share tips, ideas, opportunity & strategy for retired people.