Here are some suggestions for those planning investments close to retirement
One of the biggest challenges faced by retired people and those on the verge of retirement is ensuring a safe, reliable and continuous flow of income after retirement. Not all are covered under the pension schemes.
While planning such investments, it is of utmost importance to ensure that the investments are safe, secure and offer a regular income so that you can maintain your lifestyle as it was before retirement. Also, it needs to be ensured that the lock-in period is not too long. It is to be noted that over the years the options available have shrunk to a bare minimum. Investing in the stock markets has some pitfalls and cannot be relied on solely. A small proportion of your investments may be earmarked for the stock markets. Income from dividends as well as capital gains is volatile.
Senior Citizens' Savings Scheme
One of the best options available is the nine percent Senior Citizens' Savings Scheme. The entry level to this scheme is 60 years of age. The scheme has a provision where an investor who has reached 55 years of age and has just retired can put the money received on retirement into the scheme. This has to be undertaken within a period of one month from the date of receipt of the retirement benefits. Making this investment within the specified time limit will enable you to avail of the benefits. There is a limit of Rs 15 lakhs as the maximum amount that can be invested here. The interest received is liable to tax.
Small savings schemes
Another option is the small savings schemes such as the post office monthly income scheme. There is a maximum limit of Rs 3 lakhs in investments in a single name and Rs 6 lakhs for a joint holding. The return is eight percent. Income from this scheme is received monthly and hence useful for those who require a regular payout.
Provident fund
Then there is the Public Provident Fund (PPF), but the interest is receivable only on maturity. Any individual may, on his own behalf or on behalf of a minor of whom he is the guardian, subscribe to PPF. There is a limit of Rs 70,000 in a year.
An individual may also subscribe to the fund on behalf of a Hindu Undivided Family or an association of persons. An individual, including a Hindu Undivided Family, can open only one account. A person having another PF account can also open a PPF account. More than one account or joint accounts are not permitted.
The PPF account can be opened in a head post office, or in a branch of the State Bank of India or its subsidiaries, and also at specified branches of some other nationalised banks.
Mutual funds
With the increase in interest rates, the debt-oriented mutual funds have taken a hit and returns from medium to long-term debt funds have dropped. So, floating rate funds or short-term funds are better options.
For those with risk appetite
Now, on the risky side, is the stock market route or investments in equities and mutual funds. The dividends received from shares are free of tax. Stock markets are rising. So, you can look at additional income by investing in equity. However, this is a volatile and unreliable source, and cannot be relied on as a primary source of income. The bulls and bear phases alternate, and the durations vary and are unpredictable.
The amount to be invested here depends on the risk appetite of the investor. One has to evaluate the risk and reward ratio. If a higher return is required, then a higher risk needs to be taken through exposure to equity in some form or the other. However, one cannot expect regular income from such sources.
You can also consider investing in monthly income plans that have a low equity exposure and then move to balanced funds. While taking investment decisions, you should not lose sight of the tax considerations on income derived from the investments.
