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Post Retirement Investments Options




Post Retirement Investments Options :

Investors who have retired can invest their retired corpus into following investment options based on their income requirements and Tax Situations ;

1. Senior Citizen Savings Scheme (SCSS)

The Senior Citizen Saving Scheme allows you to invest your hard-earned retirement corpus in a safe product and offers the benefit of quarterly interest payment (payable on the first working day of April, July, October and January). You can invest a one-time fixed sum in the SCSS, for a steady source of income.

It is a suitable investment that can be held by any retiree (single or joint with spouse) aged 60 years and above for a term of 5 years. An individual of the age between 55 years and 60 years who have retired on superannuation or under VRS can also open an SCSS account.The scheme currently earns a decent interest of 8.7% per annum.

The total investment in the SCSS is maximum of Rs 15 lakhs and not below Rs 1,000.

The principal amount invested is eligible for a benefit under Sec. 80C of the Income Tax Act, but up to Rs 1.5 lakhs p.a. However, on premature withdrawal, a deduction charge is levied.

Under the SCSS, the interest earned is taxable as per the prevailing slab rates. However, TDS is applicable only if the interest income exceeds Rs 10,000 in a financial year.

On maturity of the SCSS account, you have the option to extend the account for another three years. But you need to apply within one year of maturity by applying in the prescribed format.

2. Post Office Time Deposits (POTD)

Post office Time Deposits work similar to fixed deposits. You can invest your money in these deposits for a pre-specified time horizon; i.e. 1-year, 2-year, 3-year, or 5-year tenure.

You can open the account either in a single name, or jointly, or even in the name of a minor (through a guardian) who has attained the age of 10 years.

The minimum investment amount is Rs 200, with no upper limit. However, the investment amount over Rs 1.50 lakh will not be eligible for any tax benefit.

A 5-Yr POTD currently earns an interest of 7.8% p.a., which is calculated quarterly but paid annually. The premature withdrawals are permitted only after a year from the date of deposit, subject to a penalty in the form of reduced interest rate.

The investment in a 5-year POTD qualifies for a tax deduction of up to Rs 1.50 lakh p.a. under Section 80C. But the interest earned on your investments is taxable under Section 80C.

3. Recurring Deposit (RD)

Recurring Deposit, a facility offered by Post Office and Banks, can help you gradually save for your future goals by allocating a small sum regularly.

5-Year Post Office Recurring Deposit Account offers you an interest of 7.3% per annum, compounded quarterly. Although the interest is calculated quarterly you will receive it only at maturity.

It is very convenient to invest in RD by cash or through cheque with a minimum sum of Rs 10 or in multiples of Rs 5 with no maximum limit of investment.

While the investment period in RD offered by banks varies from 6 months to 10 years the ones offered by post office come with a tenure of 5 years, with an option to continue for another 5 years on maturity.
You can open the account either in a single name, or jointly, or even in the name of a minor (through a guardian) who has attained the age of 10 years.

In case of 5-Year Post Office RD, one withdrawal up to 50% of the balance is allowed after completion of one year. It may be repaid in one lump sum along with interest at the prescribed rate. Nowadays most banks allow premature withdrawals on RD with a penal rate of interest charge.

4. Post Office Monthly Income Scheme (POMIS)

Post Office MIS is considered a preferred monthly investment avenue for individuals who seek to earn a regular income, especially after retirement. Any person in his individual capacity or jointly (by two or three adults) can invest in this scheme. However, post office MIS comes with a maturity period of 5 years.

You can invest in a multiple of Rs 1,500/- with a maximum amount of Rs 4.5 lakh for a single account holder, while joint account holders can hold up to Rs 9 lakhs in an account.

At present, the interest earned on a POMIS is at 7.70% p.a. which is compounded annually but paid monthly to take care of your monthly income.

While you can hold any number of MIS accounts in any number of branches of the post office, it does have a few restrictions. The total investment by an individual in an MIS account should not exceed Rs 4.5 lakhs, including his share in joint accounts. This restricts the number of accounts an individual can open, either individually or jointly.

5. National Savings Certificates (NSC)

Issued by the Post Offices in India, the NSC is optimum for post-retirement earnings as there is minimal risk involved. NSCs have a fixed lock-in period of 5 years and offer tax benefits too.

The minimum investment amount required is in denominations of Rs 100 to Rs 10,000 with no maximum limit to investment.
While you may not be able to invest in NSC just like SIP in a mutual fund, you need to make a separate purchase of NSC’s every month, if you wish.

Currently, the interest rate on a 5-year NSC is 8% p.a. compounded annually, but payable at maturity; i.e. you will receive accrued interest along with principal on maturity.

Premature withdrawal is not possible in case of NSC unless there is an occurrence of an unfortunate event like the death of the holder, holder of certificate forfeiting them through a pledge, a court of law ordering the pre-mature withdrawal of NSC, etc.

The interest on NSC accrues annually but is deemed to be reinvested under Section 80C of IT Act. The deposits along with the accrued interest on NSC qualify for deduction u/s. 80C, subject to a maximum limit of Rs 1.50 Lakhs in a financial year. There is no TDS on the interest earned on an NSC.

6. Kisan Vikas Patra (KVP)

It is a small savings scheme which doubles the invested amount in approx. 112 months (9 years and 4 months), at the current rate of 7.7% p.a.

The interest income earned on KVP is taxable as per the tax slab of the investor and TDS at 10% will also be deducted. Moreover, the amount invested in KVP is not eligible for a benefit under Sec. 80C.
While one needs to invest a minimum of Rs. 1,000 in KVP and in multiples of Rs. 1,000 thereafter, there is no limit to the maximum amount of investment. KVP is issued in various denominations of Rs 1,000; Rs 5,000; Rs 10,000 & Rs 50,000.

You can prematurely withdraw from NSC, after 2 and ½ years from the date of issue. The amount you receive on such premature withdrawal depends on the period of your holding. This feature makes KVP liquid vis-à-vis PPF and NSC.

7. Pradhan Mantri Vay Vandan Yojna (PMVVY)

The PMVVY scheme has been implemented through Life Insurance Corporation of India (LIC) to provide social security during old age and protect elderly persons aged 60 years and above against a future fall in their interest income due to uncertain market conditions.

The scheme provides an assured pension based on a guaranteed rate of return of 8 per cent per annum for ten years, with an option to opt for pension on a monthly, quarterly, half-yearly or annual basis.

The differential return, the difference between the return generated by LIC from the scheme and the assured return of 8 per cent per annum, is borne by the government as subsidy on an annual basis. PMVVY can be purchased offline as well as online through Life Insurance Corporation (LIC) of India.

At the end of the policy term of 10 years, the pensioner gets back the purchase price (amount invested to earn pension) along with final pension instalment.On death of the pensioner during the policy term of 10 years, the purchase price will be paid to the beneficiary.

Currently, a loan up to 75 per cent of purchase price (amount invested to earn pension) is allowed after three policy years to meet the liquidity needs. The PMVVY scheme also allows for premature exit for treatment of any critical/terminal illness of self or spouse.On such premature exit, 98 per cent of the purchase price will be refunded.

8. Equity Mutual Funds (MFs)

Investment in Equity mutual funds are linked to the market and are a little riskier as compared to the ones mentioned above. However, the impact of near-term volatility can fade over time and offer you a decent growth on invested capital.

Choose stable large-cap or hybrid funds with a suitable time horizon in mind. The investments in mutual funds can be later used as a monthly source of income through Systematic Withdrawals Plans offered by them. The returns from such funds may help you cope with the inflation during your retirement years so that purchasing power of your retirement corpus do not diminish in value




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