Investment options for Retirees

BANKS

A.    Five years Bank FDs (Maturity value for Rs 1,00,000/-) 

Sl no

Some Selected Banks

Interest Rate

( %)

Quarterly interest (Rs)

Maturity value

5 years

(Rs)

10 years (Rs)

1

IDBI bank

9.50%

2,375

1,57,424

2,47,823

2

State bank of India

9.25%

2,313

1,55,635

2,42,222

3

ICICI bank

8.75%

2,188

1,52,106

2,31,362

4

Bank of India

8.75%

2,188

1,52,106

2,31,362

5

Axis bank

8.50%

2,125

1,50,366

2,26,098

 B.    Senior Citizen: Five year Bank FDs (Maturity value for Rs 1,00,000/-)

Sl no

Selected Banks

Interest

 (In %)

Quarterly interest (Rs)

Maturity value

5 years

 (Rs)

10 years (Rs)

1

IDBI Bank

10.25%

2,563

1,62,889

2,65,330

2

State bank of india 

9.75%

2,438

1,59,229

2,53,539

3

Bank of India

9.75%

2,438

1,59,229

2,53,539

4

Axis Bank

9.50%

2,375

1,57,424

2,47,823

5

 ICICI Bank

9.50%

2,375

1,57,424

2,47,823

Taxation: 

Investment amount will be allowed as deduction u/s 80C.

Interest income from this deposit is taxable as per tax slab.

Suitability: The retiree who is in the lower tax slab.     

Indian Post Office

A.    Senior citizen saving scheme

Tenure of the deposit account

5 years + 3 yrs extension

Rate of interest

9 % pa

Interest payments

Quarterly

Taxability

Interest is taxable.

Whether TDS is applicable

Yes.

Maximum investment limit

Rs 15 lakhs/-

Minimum eligible age

60 years (55 years for those who have retired on superannuation or under a voluntary  or special voluntary scheme)

Premature closure/withdrawal

Less than 1 year: SCSS can’t be encashed

1-2 years: you are penalised 1.5% on deposit amount

On or after 2 years: you are penalised 1% on the deposit amount.

Modes of holding

Accounts can be held both in single and joint holding modes. Joint holding is allowed only with spouse.

Applicable to NRI, PIO, and HUFs

Not eligible to open account.

Taxation: 

Investment amount will be allowed as deduction u/s 80C.

Interest income from this deposit is taxable as per tax slab.

Suitability: The retiree who is in a lower tax slab and needs quarterly income.     

 B. Monthly income schemes

Maturity

6 years

Interest rate

8% per annum.

Premature closure

a.      Less than 1 year: MIS can’t be encashed.

b.      1 – 3 years: You are penalized 2% of deposit.

c.       After 3 years: You are penalized 1% of your deposit.

Investment  amount

a.      In case of single account ,Maximum Rs4,50,000/-

b.      In case of joint account, Maximum Rs 9,00,000/-

Tax & TDS

Income taxable but no TDS

Taxation: 

Tax benefit is not available on deposit amount.

Interest income from this deposit is taxable as per tax slab.

Suitability: The retiree who is in a lower tax slab and needs monthly income.

Mutual Funds

A.Balanced schemes

Best balanced schemes

Exp(%)

1 yr return

3rd  yrs return

5th  yrs

return

HDFC prudence

1.79

0.95%

32.51%

11.86%

HDFC Balanced

2.05

4.60%

29.51%

11.61%

Birla sunlife 95

2.29

-1.71%

24.99%

10.68%

Taxation:   STCG(Less than 1 year)          : 15% on capital gain

           LTCG (More than 1 year)      : Tax free 

           Dividend distribution tax is Tax free 

Suitability: The retiree who wants to higher return by taking moderate risk.

 B. Debt fund

Selected Debt funds

Exp(%)

1 yr return

3rd yrs return

5th yrs return

Escorts Income plan

2.25

15.33%

9.01%

9.14%

SBI Dynamic Bond

1.60

12.89%

7.61%

4.13%

Birla SL Dynamic Bond Retail

0.88

10.31%

7.89%

9.53%

IDFC SSI medium term

1.20

10.18%

8.76%

8.86%

Taxation: 

STCG(Less than 1 years) - Taxable as per slab rate

LTCG (More than 1 years) - 10% without indexation and 20% with indexation 

Dividend distribution tax is 14.1625% including surcharge and cess.

Suitability: The retiree who want safe return with conservative risk.

C. Fixed Maturity Plan (FMP)

a. This is a close-ended fund that invests in money market instruments and debt.

b. Pre set fixed maturity periods.

Selected Fixed Maturity Plans

Exp(%)

1m return

3m

 return

1 yr

return

Birla SL FTP Series BV

0.65

0.79%

2.49%

10.16%

HDFC FMP 36M Apr 2010

0.60

1.00%

3.08%

10.30%

Kotak FMP 24 M Series 1

0.05

0.84%

2.43%

10.07%

Taxation: STCG(Less than 1 years) - Taxable as per slab rate

LTCG (More than 1 years) - 10% without indexation and 20% with indexation 

Dividend distribution tax is 14.1625% including surcharge and cess.    

Suitability: The retiree who wants to invest for fixed maturity period with high tax slab.

D. MIPS

Selected Monthly Income Plans

Exp (%)

1 yr return

3rd  yrs return

5th yrs return

HDFC MIP Long Term

1.53

5.90%

15.63%

9.86%

Reliance MIP

1.54

7.49%

13.09%

10.35%

Birla MIP II savings 5

1.30

9.57%

8.18%

10.33%

Taxation: STCG(Less than 1 years) - Taxable as per slab rate

LTCG (More than 1 years) - 10% without indexation and 20% with indexation 

Dividend distribution tax is 14.1625% including surcharge and cess. 

Suitability: The retiree who wants to receive periodical income.

E. Ultra short term fund

Best Ultra short term fund

Exp (%)

1 yr return

3rd  yrs return

5th  yrs

return

IDFC Ultra short term

0.19

9.66%

NA

NA

Canara Robeco floating rate ST

0.37

9.74%

NA

NA

Birla sl floating rate long term

0.54

9.35%

7.89%

8.34%

Taxation: STCG(Less than 1 years) - Taxable as per slab rate

LTCG (More than 1 years) - 10% without indexation and 20% with indexation 

Dividend distribution tax is 14.1625% including surcharge and cess.

Suitability: Temporary parking of funds (6 months to one year) to time investment later

F. Liquid Fund

Best Liquid fund

Exp (%)

1 m return

3 m return

1 yr

return

Reliance liquidity

0.35

0.80%

2.35%

9.17%

TATA liquid super HI

0.35

0.80%

2.35%

9.14%

IDFC cash plan C

0.45

0.80%

2.34%

9.16%

 

Taxation: STCG(Less than 1 years) - Taxable as per slab rate

LTCG (More than 1 years) - 10% without indexation and 20% with indexation 

Dividend distribution tax is 28.325% including surcharge and cess.

Suitability: Immediate parking of funds. 

Life Insurance

(Pension/Annuity)

 LIC and ICICI prudential life were offering this product but now this has been discontinued .New products awaiting IRDA approval. The various annuities options are

i. Life annuity

ii. Annuity certain for a fixed number of year

iii. Joint life annuity

iv. Annuity for life with return of purchase price

Taxation: 

Investment amount will be allowed as deduction u/s 80C.

Interest income from this is taxable as per tax slab.

Suitability: The retiree who wants periodic income after retirement.     

Corporate Bonds/NCDs

Corporate Bonds/NCDs offers higher returns but has element of credit risk. It is less liquid.

Taxation: STCG(Less than 1 years) - Taxable as per slab rate

LTCG (More than 1 years) - 10% without indexation and 20% with indexation

Suitability: The retiree who wants to receive higher income by taking risk. 

Reverse Mortgage

  1. Age is 60 years for males and 58 for females.
  2. Maximum loan= 60% of the property value.
  3. Minimum term is 10 years and Maximum term is 15 years but some of the banks give up to 20 years as well.
  4. Payment options are monthly, quarterly, annually or lump sum. 
  5. Revaluation of the property is done every five years.
  6. Cash inflows are not taxable.

Taxation: Periodical Income is not taxable

Suitability: If a retiree is not able to earn and does not have any other financial assets except residential property. Reverse mortgage is a good option for him.

 Comparison

Sl no

Investments

Interest rate

80C deduction

Interest/

Income

Maturity value

1

Five year bank deposits

9-10% pa

Yes

Taxable

Exempt

2

Senior citizen saving scheme

9% pa

Yes

Allowed for deduction

Taxable

3

Post office monthly income scheme

8%

No

Taxable as per slab rate

Taxable only in that year interest portion

4

Balance fund

 

 

 

See above

 

 

 

 

 

No

 

 

 

Tax free

STCG= 15% on capital gain

LTCG= Tax free

5

All Debt fund (Debt fund, MIP, FMP, Ultra short term fund)

Tax free subject to 12.5% DDT*

**STCG=As per slab rate

 

***LTCG=10% without indexation or 20% with indexation

6

Liquid fund

Tax free subject to 25% DDT*

 

7

Annuities

5%-8%

Yes

Taxable

No maturity value

8

Non-convertible debentures

Relate to market rate

No

Taxable as per tax slab

Only last year’s  interest portion

* Dividend distribution tax

**Short term capital gain

***Long term capital gain

All the above three are subject to 10% surcharge +3% Higher education cess 

 

The longetivity of both male and female are rising every decade. The breakdown of joint family system, need for better health care at old age and rising cost of living have thrown serious challenges to retirement planning.

A SEBI registered investment adviser or a fee only certified financial planner will help you in designing a retirement road-map. This will definitely help you to enjoy Golden days of your life peacefully. 

Last modified on Friday, 16 August 2013 12:02

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

1 comment

  • Manish

    posted by Manish

    Wednesday, 21 August 2013 06:20

    good article for 50+ citizens

    Report

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