Due to the falling interest rate, the risk involved in equity, and debt space, many senior citizen investors are now in a huge problem to generate a decent return for their survival. What are the best investment options for senior citizens in 2020 to generate regular income?
Before jumping into available products, you have to first clear yourself with what are you looking for while investing.
# Is it for income generation or growth?
You have to be very clear whether the investment is for income generation for your regular survival or investing to grow your accumulated corpus.
# What is your tax slab?
You have to look for post-tax returns always rather than the pre-tax return. Because if you are falling under the highest tax bracket, then a major portion of return will be eaten by the tax.
Hence, understand the product at first, then your tax slab and after that take a concious decision.
# You can stagger your investment
If your idea is to generate a constant stream of income, then you can use a bucket strategy. Where you are putting your first 10-15 years requirement in safe products (a first bucket) and accordingly the future requirements splitting into a different bucket and taking the calculated risk slowly as the required term is higher.
If you can’t do that, then hire a fee-only financial planner to help you in this.
# Higher RISK always not HIGHER returns
Higher risk always does not mean higher returns. There is a probability of higher loss also. Hence, never heed anyone blindly. Understand the risk properly and then decide yourself.
# Inflaiton RISK
Never think or not be in the wrong assumption that if you have a sufficient amount today then that sufficiency will remain the same. Due to inflation, whatever may be a good income for you will not be sufficient for your requirement. Hence, always consider inflation while investing.
# Interest Rate Risk
The majority of products offers around 5-10 years. Hence, once the maturity is over, then it is not sure whether you will be able to generate the same returns or not. For example, if you opted the SCSS scheme, then it is 5 years product. Once the 5 years completed, then you have to face the interest risk. Because after 5 years, the same SCSS may not offering you the same interest rate as what you are getting today. Hence, understand this factor properly.
Look for the product which offers you certain liquidity. Because we don’t know when you need money. Hence, it is always wise to choose a product wisely which offers the highest liquidity.
# Make a nomination and WILL
Wherever you invest, make sure you have nominated and if possible create a WILL also. So that your dependents or family may not be in a tussle in your absence.
Best Investment Options for Senior citizens in 2020 to generate regular income
In this post, I am concentrating only on SECURED products. I am not suggesting any market-linked debt or equity instruments. Because to invest in such products, you need someone’s guidance or you have to do your own research. Hence, rather than forcing you to experiment on any such options, in this post, I am sharing the best investment options for senior citizens in 2020 to generate regular income.
# Bank or Post Office FDs
I know that currently Bank FDs are offering you around 5% to 6.5% interest rates. However, recently few banks started to offer higher interest rates for senior citizens if they are booking the FDs for 5 years to 10 years. Refer my latest posts on that “SBI WeCare Deposit Vs Senior Citizens Savings Scheme (SCSS) – Which is the best?” and “HDFC Senior Citizen CARE FD Vs SBI WeCare FD Vs Senior Citizens Savings Scheme (SCSS) – Which is the best?“.
When I say Bank FDs, I am suggesting nationalized banks or big private sector banks like ICICI or HDFC. I am not suggesting any Co-Operative Banks.
You can explore the Post Office FDs also. The current interest rate is 5.5% to 6.7%, which is almost equal to the bank FD rates. You can refer to the latest interest rate at my post “Latest Post Office Interest Rates April-June 2020“.
You have an option to get the interest rates either on monthly/quarterly or at maturity. If you are really looking for the safety, then I suggest Post Office Term Deposits over the Bank FDs.
# Senior Citizen Savings Scheme
Post Office and certain recognized Banks offer you this wonderful product. The term is 5 years and the maximum amount you can invest is Rs.15 lakh. The current rate of interest is 7.4%. The interest will be payable on a quarterly basis.
You can refer to the complete details about the Senior Citizen Savings Scheme at “Post Office Senior Citizen Scheme (SCSS)-Benefits and Interest Rate“.
# Pradhan Mantri Vaya Vandana Yojana (PMVVY)
It is a wonderful product launched by the Government of India. It is a 10 years product. The current interest rate is 7.4%. This product is currently available up to 31st March 2023. You can buy this from LIC. In fact, you can avail of the loan on this. The maximum limit to invest is Rs.15,00,000.
You can refer to the complete details about Pradhan Mantri Vaya Vandana Yojana (PMVVY) at “Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2020 – 2023 – 5 Changes you must know“.
# Post Office Monthly Income Scheme (POMIS)
As the name suggests, the Post Office will pay you the interest on a monthly basis. It is a 5 years product. The maximum limit is Rs.4.5 lakh. The current interest rate is 6.6%. Refer my article on this product “Post Office Monthly Income Scheme or MIS – A complete guide“.
# 7.75% Government of India Savings Bonds (Taxable)
It is a 7 years bond where the current interest is at 7.75%. There are options like cumulative and non cumulative also. The Bonds will bear interest at the rate of 7.75% per annum. Interest on non-cumulative Bonds will be payable at half-yearly intervals from the date of issue (The date of issue of the Bonds in the form of Bonds Ledger Account, will be opened (issued) from the date of tender of cash or the date of realization of draft/cheque.) or interest on cumulative Bonds will be compounded with half-yearly rests and will be payable on maturity along with the principal.
You can refer my post for a complete detail at “How to buy/invest in 7.75% Government of India Savings Bonds?“.
# Tax Free Bonds
Currently there are no tax-free bonds offerings. However, you can buy them from the secondary market. You will get the tax free interest up to maturity. You will get various maturing tax-free bonds. You can refer my post for a complete detail at “Best Tax Free Bonds 2020 in India – Should you invest?“.
The yield may vary based on the date of maturity and coupon. Hence, you have to understand your requirement at first then jump into buying such bonds.
# Immediate Annuity Plans by Life Insurance companies
Life Insurance companies including LIC offer such immediate annuity plans. For example, you can check LIC’s Jeevan Shanti plan. This particular plan offers around 10 various options based on your requirement.
This product will give you GUARANTEED returns for the specified period based on the option you opt for. Hence, there is no question of interest rate risk.
Conclusion:-As per my knowledge, these are the Best Investment Options for Senior citizens in 2020 to generate regular income. As I pointed out earlier, I have not listed any debt funds or equity funds where you can invest and use the strategy called a systematic withdrawal plan. Because they are not suitable for those who are looking for a safe and constant stream of income.
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