Liquid, tax-efficient investments key to secure retirement

Jun 24 2014, 00:51 IST
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SummaryFor the retired, it is crucial to protect and grow their hard-earned savings and, at the same time, ensure liquidity.

For the retired, it is crucial to protect and grow their hard-earned savings and, at the same time, ensure liquidity. There are some investment avenues retirees can consider while maintaining their portfolios.

Senior Citizens Savings Scheme

This is one of the most popular options for retirees over the age of 60. The maximum that an individual can invest is R15 lakh. Generally, the duration of the scheme is five years and it offers a handsome return of 9% per annum. It offers interest payout on a quarterly basis and investors also have the option to prematurely liquidate their investment after the expiry of one year, though after deduction of some penalty in the form of a nominal percentage of the investment.

Investment in this scheme also offers tax advantage in the form of a deduction under Section 80C of the Income Tax Act. The interest income is taxable and could be subject to deduction of tax at source (TDS). One can furnish a declaration in Form 15-H as applicable to avoid deduction of TDS.

Monthly Income Scheme (MIS)

The post office MIS is another investment avenue retirees can consider. Offering an assured monthly income, the scheme spans six years, giving a return of 8.4% per annum. It offers monthly interest payouts, which can be either re-invested or withdrawn. However, premature withdrawals of the principal are permitted after a year from the date of investment. Again, like SCSS, penalty as a nominal percentage of the initial amount invested applies on premature withdrawals of principal. The major drawback of MIS from post office is that it is not eligible for tax benefits and the interest income from investment in such schemes is taxable.

Fixed deposits/Time deposits

A time deposit is essentially a fixed deposit of a fixed sum for a fixed duration at a fixed rate of interest, and it can be made with any scheduled bank or post office. Investors can choose from various term plan options and returns vary based on the duration. Also, most fixed deposits offer a higher interest rate (generally 0.50% higher than the regular rate) to senior citizens, which makes FDs all the more attractive. Such investments offer good liquidity through periodic interest payouts. Premature withdrawals are permitted, but may entail a penalty. Other liquidity options are linking the term deposit with the savings bank account. Time deposits are eligible for tax benefits under Section 80C of the IT Act only if under

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