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Off the beaten track

In the wake of repeated rate cuts & the Prime Minister's recent announcement of a special fixed deposit scheme for senior citizens, Dhirendra Kumar evaluates the options available. Read on or watch the video

On the last day of 2016, Narendra Modi made a series of announcements for different sections of society. For home buyers, he instituted interest rate cuts. For women, he offered money during pregnancy. And perhaps, most importantly of them all, he guaranteed senior citizens 8% interest for 10 years on fixed deposits upto Rs 7.5 lakhs. So should you go for it? Or should you reconfigure your post-retirement investment strategy? Keeping the past & anticipated rate cuts in mind, we would advise senior citizens to reconfigure their investment strategies.

Vox populi

  • SCSS has always been a popular choice with our senior citizens. Having a 5-year tenure (can be extended for another 3 years), it currently gives an 8.5% (Q3FY16-17) return on a maximum amount of Rs 15 lakh (Rs. 30 lakh for joint account with spouse). For other details on SCSS, you can read this article.
  • Another safe haven for senior citizens is the Post Office Monthly Income Scheme (POMIS). It pays out an assured monthly income on a maximum investment of Rs 4.5 lakh (Rs 9 lakh for joint accounts). With a return of 7.7% (Q3FY16-17), the instrument sounds good enough for people who are looking to generate regular income. This article will tell you everything about POMIS.
  • Other popular options include National Savings Certificate, Post Office Term Deposit, and Bank FDs (certain private banks like Bandhan Bank and IDFC Bank are offering interest rates of up to 9%).

What’s the problem?
There are two problems with the mentioned options. First, all of the above mentioned schemes are taxable at some stage or other. Second, most of those schemes won’t be able to tackle the inflation monster, particularly when there is a prospect of further rate cuts. So, over a long period of time you are bound to lose a lot of money.

So, what’s the plan? Take the road less travelled

  1. Plan your expenses. Figure out how much do you need every month.
  2. Compare it with your pension, if you have one. Do you still need additional monthly income? If yes, by all means, put an appropriate amount of your retirement corpus in an instrument like the Post Office Monthly Income Scheme (POMIS).
  3. Put the rest of your retirement kitty in debt-oriented hybrid funds or equity-oriented hybrid funds (according to your risk tolerance). We say hybrid funds because steep movements in pure equity funds may not suit the risk appetite of senior citizens.

Pits to avoid

  • Don't put your entire retirement corpus in small-cap, mid-cap and sectoral funds. The risk is not worth taking.
  • Never invest at one go. Spread your investments over a period of time to avoid market volatility. Use transactional facilities like STP and SWP.