Budget 2023 has been a blockbuster for senior citizens looking for risk-free investments to earn assured income. Schemes such as Senior Citizen Savings Scheme (SCSS) and the Post Office Monthly Income Scheme (POMIS) received some facelift as Finance Minister Nirmala Sitharaman decided to increase the maximum investment in these state- backed schemes.
That’s not all. Sitharaman also introduced another scheme, just for women across all ages, called the Mahila Samman Savings Certificate (MSSC). There is already one scheme for senior citizens – the Pradhan Mantri Vaya Vandana Yojana (PMVVY).
Here is how the math works out.
Assured returns bouquet
The maximum investible amount under SCSS has been enhanced to Rs 30 lakh from Rs 15 lakh.
This means a senior-citizen couple can park up to Rs 60 lakh, if they want to max out the quota. SCSS is available through India Post and commercial banks, and has a five-year tenure.
At the time of maturity, it can be extended by three years. The rate of interest, though, gets reviewed each quarter, like other small-savings schemes. The rate offered at the time of making the deposit is assured for the tenure. As of now, SCSS offers 8 percent rate of interest payable quarterly.
The enhanced maximum investible amount under POMIS, of up to Rs 9 lakh, for a single-holder account, from the earlier Rs 4.5 lakh, is also attractive. A couple can thus park up to Rs 18 lakh in it.
The rate of interest offered is 7.1 percent per year, payable monthly for five years. POMIS, technically known as Post Office Monthly Income Scheme Account, can also be availed by non-senior individuals as well. But due to its monthly income payment option, it is popular among senior citizens.
MSSC is the new entrant here. The scheme is meant only for women and girls. The maximum investment is capped at Rs 2 lakh and the tenure is two years. The scheme will remain on shelf till March 2025 and will offer a rate of interest of 7.5 percent. Further details are awaited.
And do not forget the PMVVY, which allows deposits up to Rs 15 lakh for a senior citizen. The 10-year scheme, managed by the Life Insurance Corporation of India, offers a return of 7.4 percent. So, a senior couple can together invest Rs 30 lakh in it.
All these four avenues will enable a senior couple park Rs 1.1 core.
What works?
Contributions to SCSS, up to Rs 1.5 lakh in a financial year, can fetch you deduction under Section 80C. This is applicable to all those who are under the old personal tax regime (OPTR).
“Given the simplicity of the small saving schemes, they are easy to understand. There is little scope for mis-selling,” said Joydeep Sen, corporate trainer on debt.
Assured returns, payable at regular intervals, can work better for senior citizens looking for a regular income. This augurs well for those who have not availed other annuities.
Back-of-the-envelope calculations show that senior-citizen couples can earn around Rs 70,500 a month. But there are many caveats.
Interest on SCSS is paid every quarter. Besides, MSSC’s interest payment frequency is not yet announced; interest could either be monthly, quarterly, annually or at maturity. The calculation assumes that the prevailing interest rates are earned on the entire money deposited in various schemes discussed earlier.
Mind the tax and lock-in
Amol Joshi, founder of Mumbai-based Plan Rupee Investment Services, finds these schemes attractive for all those who are looking for safety of capital and assured returns.
“However, a point to note is the interest received is taxable,” he said.
So, for all those investors with other income such as pension, annuities and rental receipts, the effective rate of return need to be watched out for. For investors with no other income, a move towards the new pension tax regime can help pocket all the interest earned with little tax impact, as the rebate offered under Section 87A brings tax liability of an individual earning up to Rs 7 lakh to zero,” Sen added.
Even senior individuals contributing to SCSS and health insurance in a planned manner can avoid income tax.
Another aspect to keep in mind is the need for intermittent cash requirements. An emergency fund has to be kept in bank fixed deposits.
“Senior citizens can look at small savings schemes, provided they are comfortable with the lock-in or restricted withdrawals permitted,” says Sen.
Senior couples should not ignore their financial goals. If they are keen to leave some legacy, they should look beyond the aforementioned schemes.
“Enhancing the investment limit does not mean committing the entire corpus in fixed income as it is unlikely to beat inflation,” says Roshni Nayak, a SEBI- registered investment advisor and founder of Goalbridge – a Mumbai-based financial planning firm.
She recommends up to 20 percent allocation to equities for senior citizens, depending on their risk appetite and financial situation.
Joshi concurs, “If you want to plan for a long life ahead and want to beat inflation, take some exposure to equity funds, balanced advantage funds or equity hybrid funds.”
What should you do?
Senior citizens should look at their cash flow needs and accordingly allocate money to these schemes. Interest rates on offer on these instruments are attractive, as of now, and may remain so for some time.
Balwant Jain, a Mumbai-based Chartered Accountant, says: “Make the most of the rising interest rates by staggering your investments over the next one year. Contribution to SCSS over multiple financial years can help you enjoy deductions in each year.”
Since these investments offer varying tenures – from 2 years to 10 years, you are effectively spreading out your reinvestment risk. If you take a piecemeal approach further, you are also going to get intermittent maturities, which ensures cash flow and an opportunity to reinvest.
If you are looking for regular income, you can invest a large chunk now. If you have already exhausted the old maximum investible limit, wait for the roll-out of the new limit.
If you still have money left and want to invest in a safer avenue, consider investing in RBI Floating Rate Savings Bond, which offers 35 basis points more interest than the National Savings Certificate. The bond has a tenure of seven years.
The most important thing: Do not ignore equities. Equities beat inflation over a long period of time.
Also remember to appoint nominees on all your investments.
