Skip to main content

Post Retirement Investment: Liquidity, safety is a must

Retirees receive a considerable amount from provident fund accumulation and superannuation and gratuity benefits. Many prudent ones would have accumulated a corpus through disciplined investing as well.

They must make many investment decisions to channelise the retirement corpus thus accumulated. The first decision will be to determine the asset allocation mainly between equity and debt. A 70:30, debt:equity ratio suits many but a proper analysis current investments and passive income streams must be done first.

Debt gives stability to the portfolio and can be used to generate regular income streams to meet monthly expenses. Whereas, equity gives long-term returns and helps beat inflation.

Fixed deposits (FDs), Senior Citizens Savings Scheme (SCSS), Post Office Monthly Income Scheme, debt mutual funds and pension plans by life insurance companies are the various options available on the debt side.Of these, FDs and SCSS are your best bets in the current scenario.

The SCSS has been a huge hit since its launch in 2004, due to its attractive interest rate of nine per cent and sovereign backing. FDs, on the other hand, have been considered unattractive as their posttax returns didn't even beat inflation. However in recent times FD rates have gone up considerably and can be considered as an alternative to SCSS. Most banks are offering FD rates for senior citizens between 9 -10 per cent. Before making a choice, retirees must considerthe following factors.

INTEREST RATE

Comparing the interest rates is probably the first step but not really a deciding factor. FDs are offering 0.5 - 1 per cent higher rates than SCSS, which essentially converts into a higher monthly income for you. A sum of `15 lakh parked in SCSS will fetch you a monthly income (payout is actually quarterly) of 11,250, whereas an FD with 9.5 per cent will give you `11,875.

TERM AND WITHDRAWAL

This can be a big deciding factor. SCSS carries a term of five years and can be extendable by another three years, with interest rates prevailing at that time. Any premature withdrawal will attract a penalty of 1.5 per cent between one and two years and one per cent above two years. Whereas, FDs offer the flexibility of deciding the term in line with your convenience. Banks also give loans on FDs for emergency purposes.

INCOME VERSUS ACCUMULATION

SCSS offers regular payout of interest rates on a quarterly basis. FDs offer regular interest payouts as well as the cumulative option. If you have a decent regular income stream (say house rentals or pension) you may not require additional regular income from investments in the years immediately following your retirement. In this case, opt for the cumulative option of FDs to grow the investment corpus. The compounding works well even with debt investments.

TAXATION

The returns from both instruments are taxable and get added to your income while calculating the tax.

However, investments in SCSS are eligible for Section 80C benefits, where regular senior citizen FDs don't qualify (except tax-saver term deposits, typically with a fiveyear-plus tenure). So, if you fall in the taxable bracket and wish to avail of this tax benefit, SCSS works better. However, ensure you aren't already investing in other tax-saving instruments like life insurance or Public Provident Fund.

In conclusion: it makes sense to invest your retirement corpus in FDs to build your debt portfolio in this scenario. Make use of the prevailing high interest rate environment while it lasts, but only after evaluating all the factors.
 

Popular posts from this blog

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...
Read more

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...
Read more

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Read more

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now