Widely read:
RBI launched floating-rate taxable bonds in 2020. These bonds have a tenure of seven years. The interest rate of these bonds reset every six months in sync with the returns offered by National Savings Certificate (NSC) plus an additional 0.35 per cent. NSCs are currently offering 6.80 per cent. So, the coupon rate of these bonds is 7.15 per cent (6.80 + 0.35). The interest is paid on a half-yearly basis, with the next coupon payment likely to be released on July 1, 2022. Interest is added to the income and taxed as per the applicable slab.
A premature exit is allowed for investors who are 60 years and above. For a senior citizen aged between 60-70 years, the lock-in period is six years. However, the lock-in period is five years for those who are aged 70-80 years and four years for those aged above 80. After the lock-in period, they can exit the investment. Let's look at the other available investment options for a senior citizen to derive regular income.
PMVVY & SCSS
Pradhan Mantri Vaya Vandana Yojana (PMVVY), although marketed as a pension scheme, is like a fixed deposit with LIC. Senior Citizens Savings Scheme (SCSS) is a retirement benefit program - again like a fixed deposit where you invest your money for five years and generate an interest payout on a quarterly basis. At present, the two schemes are generating an interest of 7.40 per cent. For PMVVY, the interest rate is reset annually while the interest rate for SCSS changes every quarter. However, both the investments have a limit of Rs 15 lakh each.
Debt funds
Short-duration funds are another alternative. They are capable of delivering high returns. These funds currently have a YTM of around 5 to 6 per cent. These do not have any restriction on withdrawals in terms of the lock-in period.
If the investor is looking for a guaranteed income, then SCSS and PMVVY look like a better option since they provide good returns compared to the RBI bonds. But they have one drawback - they have a ceiling of Rs 15 lakh each. If the investor has a higher corpus, they can invest Rs 30 lakhs in those two schemes and then go for other options. Though RBI bonds may look currently better than debt funds, do not forget to consider the post-tax picture. The returns from RBI bonds may considerably reduce depending on which tax slab the investor falls in. For anyone in the highest tax bracket, the returns can fall from 7.15 to 5 per cent (7.15 minus 30 per cent of 7.15). While short-term gains from debt funds have the same tax treatment (added to income and taxed as per the applicable slab), if held for more than three years the gains are taxed at only 20 per cent, that too after providing the benefit of indexation.
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