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

Jeevan Labh

 The Life Insurance Corporation of India has announced Jeevan Labh , its limited-premium, with-profits endowment plan .   It comes with a premium paying terms of 10, 15 and 16 years for corresponding policy tenures of 16, 21, and 25 years respectively. ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 83...
Read more

Liquidity Adjustment Facility

Liquidity adjustment facility (LAF) is a money market tool used by the central bank of a country (in India it is the Reserve Bank of India ), to infuse funds into the country's banking system when liquidity dries up. Again, in case there is excess liquidity, the central bank uses some tools to help banks manage their surplus liquidity. Usually the RBI uses the repurchase facility (called Repo ) to give short-term loans to banks to meet their temporary liquidity shortage. On the other, hand RBI uses reverse repo facility to help banks park their excess liquidity with it. Banks usually use various securities, which are approved by the RBI, as collateral when they take money from the RBI to meet their short term liquidity requirement     Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara...
Read more

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...
Read more

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...
Read more

General insurance

  General insurance has evolved to become as important as life insurance. A look at some categories which can no longer be over-looked…    Insuring your belongings can help you cushion yourself against financial losses. While life insurance takes care of your loved ones, it is equally important to safeguard your treasured possessions. Here's a quick look at the 'must-haves' under general insurance…     Travel insurance Accidents can happen anytime – worse if they happen when you are in a foreign land. You may get sick and meeting your medical bills in a foreign currency can be quite frustrating! Besides, there may be other tricky situations such as accidents, loss of baggage or passport, trip cancellation, flight delays, plane hijack, etc. Whether you travel for leisure, business or studies, travel insurance comes handy to safeguard your trip against contingencies and that too, at a fraction of the cost of your trip.     Home insurance For most of us, the home is the...
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