Fixed deposits with banks are the almost default choice of senior citizens most of whom are understandably risk-averse and look for regular income. With banks humoring them with half percent higher interest vis-à-vis non-senior citizens and the income tax law doing its bit with a generous exemption from tax of Rs 50,000 per financial year for bank interests including fixed deposits (FD) and exemption from tax deduction at source (TDS) of FD interest up to Rs 50,000 per financial year, FD naturally is their first choice.
A variant of FD is Senior Citizens' Saving Scheme (SCSS), probably the first choice of most retirees. SCSS can be availed from a post office or a bank by anyone above 60. SCSS has a five-year tenure, which can be further extended by three years once the scheme matures. Currently, the interest rate on SCSS is 8.3 percent per annum, payable quarterly and is fully taxable. The upper investment limit is Rs 15 lakh.
Equity on the other end of the spectrum is highly risky with no guaranteed returns much less their regularity. But then it should not be spurned for this reason alone as mutual funds by diversifying their investments among several shares of good companies protect them from the risks arising out of investing in a single share.
To wit, if a senior citizen wants to invest Rs 5 lakh in equity and sets out to invest himself, he might at best be able to invest in five scrips. On the other hand, if he gives Rs 1 lakh each to five different mutual fund houses, he is possibly investing in 50 shares vicariously without his knowing. A possible return of 15 percent from equity funds is nothing to scoff at and is much higher than FD interest if one doesn’t get restless with every upheaval in the market.
Gold, too, is a good investment in terms of capital appreciation as mining of fresh gold has almost come to a standstill and the world is managing with the existing stock of gold. No wonder gold has been maintaining a steady upward trend. But then gold does not give regular returns. Therefore, buying gold coins and selling them for capital appreciation is a good option. And if held for three years, the capital gains acquire the character of long-term gains eligible for a concessional flat rate of tax besides a couple of tax shelters.
Better still, paper gold or investments in units of mutual funds focusing on gold saves one from locker charges and risk of being duped by wily goldsmiths.
Real estate is the most illiquid of assets. But that does not mean it is not a good investment. Those fortunate to inherit family legacies have struck it rich. To wit, a senior citizen who has inherited a bungalow in an upmarket area in New Delhi can hope to get a mind-boggling rent of Rs 5 lakh per month. This, however, is an exception and not relevant for fresh investments.
A flat costing Rs 2 crore in megapolises in India roughly fetch Rs 50,000 per month translating into Rs 6 lakh per annum that pales before the bellwether FD interest. Therefore, for a senior citizen, to look for rent as a source of income on the back of fresh construction of a residential house is not a very good idea even though it may be for self-occupation.
In conclusion, for a middle-class senior citizen, the following rule of thumb may be useful—invest 60 percent of your funds in fixed income and easily realisable avenues. FDs stand out. Invest 25 percent in gold is the refrain of many financial advisors but given the long wait involved, gold may not be a good investment to depend on for meeting the expenditure on daily chores. It may be good for meeting exigencies like marriage or higher education. So, wherever possible, a middle-class senior citizen can set aside 15 percent in gold, for instance. Around 25 percent in regular equity mutual fund schemes can heighten the returns. Diversification of fund houses also ensures that someone or the other is distributing dividend every month or every quarter.
(The author is a senior columnist and tweets @smurlidharan)
Updated Date: Jun 04, 2019 14:16:29 IST