BEYOND THE FD

It is time to explore other safe fixed income options that offer higher return

Rate cuts may be happy news for borrowers, but not for senior citizens, for whom falling rates mean diminishing cash flow. Many of them put their lifetime savings in fixed deposits where the interest rate is fixed—they get additional interest above normal FD rates and the capital is perceived to be fairly safe. In fact, many retirees depend on the interest from FDs for day-to-day expenses.

However, it is time to look beyond FDs and look at other options that offer guaranteed returns as well as safety of capital. As Ravi Jain, chairperson of JRK Group, says, “Instead of putting all your money in a single regular income instrument, senior citizens should focus on diversifying their investments into Senior Citizens Savings Schemes, the Pradhan Mantri Vaya Vandan Yojana, Immediate Annuity and RBI savings bonds. Diversification in sync with one’s financial goal helps reduce risk, earn good return and ensure better tax efficiency for senior citizen investors.” What are these options and what do they entail? A quick primer. Senior Citizens’ Savings Scheme (SCSS): A post-office scheme specially designed for senior citizens, it generally offers interest rates higher than FDs. The interest is revised as well as paid quarterly. The lock-in period is five years. Premature closure after a year invites penalty equivalent to 1.5 per cent of the deposit and 1 per cent of the deposit after two years. Investment up to Rs 1.5 lakh is eligible for income-tax exemption. One can invest up to a maximum of Rs 15 lakh. Monthly Income Scheme (MIS): Interest in this post-office scheme is paid monthly. One can invest only up to Rs 4.5 lakh in a single account and up to Rs 9 lakh in a joint one. The current interest is 7.6 per cent. FDs with small finance banks: Small finance banks offer interest rates higher than commercial banks to lure customers. The Jana Small Finance Bank, for instance, is offering senior citizens an interest rate of 9 per cent on a three-year FD; the Fincare small finance bank is offering 9.5 per cent. Pradhan Mantri Vaya Vandan Yojana: Operated entirely by the Life Insurance Corporation of India, the pension scheme has a policy term of 10 years. One can opt for monthly, quarterly, half-yearly or annual pension of Rs 1,000Rs 10,000 a month, depending on the investment. The scheme also has an insurance component where the invested amount is paid to the nominee in case of the death of the buyer. “It’s a good option for senior citizens as they have a low risk appetite, and with insurance benefit to the nominee, it has an added advantage over other investment options for retirees,” says Jain.

RBI Savings Bonds : With a seven-year tenure, these bonds are now offering a return of 7.75 per cent. “RBI savings bonds are definitely good, sovereign quality with an attractive interest rate. One can go for them, after taking note of the lock-in. Liquidity is an issue in this instrument,” says Joydeep Sen, founder, Wiseinvestor.in. The bonds offer a cumulative as well as noncumulative option. Under the latter, interest is payable half-yearly. You can invest a minimum of Rs 1,000, there is no maximum limit.

While these alternatives provide safety of capital and guaranteed return, they may not help you beat inflation. So, as Shweta Jain, founder & CEO, Investography, advises, “Any money not needed for the next seven years should be invested in equities for growth. At least 20 per cent of the corpus should be in equities to ensure inflation-adjusted cash flows later.” ■