Senior Citizens at Financial Cross roads

 

Senior Citizens :- At Financial Crossroads

 

The word Turbulence is often associated with disturbance in Air or sea travel.  One can hardly imagine it being used while boating in a neighborhood lake.  However, it has become the state of mind of many senior citizens especially in year 2020. In present financial scenario they are at the crossroads Vis a Vis their finances.  Doomed if they invest and doomed if they not.  In the next few paragraphs let’s analyze the reason behind this sudden panic gripping our beloved senior citizens and how can they cope with it?

Indian economy has been going through bad phase for past few fiscal years. The GDP growth rate has declined from 8.20% (2010) to actual contraction by around 24% in Year 2020. PMC, Yes bank and many NBFCs have defaulted or under stress.  Interest rates on deposits are on free fall. There is no sure thing, where it is going to stop.  To add to the woes Corona has hit the markets so hard that it is tough to time the market, especially when you are a senior citizen and have lesser risk taking acumen.

The age above 60 is often associated with the time, when one enjoys the fruit of their labours and hard work over the years. It is also the time for succession planning and to enjoy life to the fullest without any worries. Bank deposits play a major role in the fulfilling those plans. According to a survey almost 90% percent of Senior citizens in India invest their money in Bank deposits and bulk of them relies on interest income for their day today functioning. 

Bank deposits of public sector Banks are good but not comparable to rates given by few private banks, small finance banks, Non-Banking finance companies and few corporates who issues bonds. However default of PMC bank and other such Banks has not only caused unrest but actual heart break for many senior citizens who invested in their deposits. Many investors also invested in Tier 1 bonds of Yes Bank in anticipation of a better return. Those investors are now stuck, not only that, the media and print coverage the news received, caused mass withdrawal of deposits from such Banks to safer avenues of Public sector Banks & post offices. The liquidity flush Banks further reduced the deposit rates leading to more heartburn.

For majority of small depositors in Indian Banking system, it is just not heart burn, it has now become a matter of survival and they don’t know what to do in such circumstances.  There is a cap to how much one can invest in Small saving schemes of the Govt.  Investment in stock market is too risky for liking of even few daredevils in this age.  Mutual funds have not performed too well.  The performance of mutual fund schemes is good with an average return of 9 to 10%, but it cannot be said of each and every mutual fund schemes. Investment in mutual fund markets is default with risk in the nascent Indian market with little protection to investors which are not properly knowledgeable and risk averse. Senior citizens are in a fix, a literal crossroad and it has caused a plethora of disturbance in their usual mundane life.

So, what is the way forward? There must be a way to ride over these testing times and means, wherein Senior citizens can invest their money with better returns and relatively lesser worries. Let’s look forward to few of such avenues.

 

v  SCSS  : - Senior citizen saving schemes or better known as SCSS, is one of the best source of revenue for a senior citizen. With an interest rate of 7.40% and quarterly interest pay out, it suits well to meet their day to day expenses needs. However the duration of SCSS is 5 years extendable up to further 3 years.  A cap of investment up to 15 lakhs is also there. But a silver lining is that, the senior citizen couple both can invest in their own name. So, in principle a senior citizen couple can invest Rs 30 lakhs in SCSS scheme.

v  Tax free bonds  : - Govt. of India often raises money by issuance of Bonds for project which are of long term in nature.  These bonds carry zero default risk and rates range from 5.5% to 6.5%, which is good considering it is non- taxable.  The average tenor of Bonds is 10 to 20 years. However, it cannot be redeemed in between, but can be traded in stock exchange.

v  PMVVY  : - Pradhan Mantri Vaya Vandana Yojana or more popularly known as PMVVY is a pension scheme managed by Life Insurance corporation of India (LIC). It presently offers a return of 7.40% in monthly/quarterly/half yearly/annually interest payment mode over 10 years. However the upper cap for investment is the scheme is 15 lakhs and duration is 10 years. Like SCSS, a senior couple can invest up to Rs 30 lakhs maximum in the scheme.

v  Post Office Deposit Schemes (MIS)  :- The scheme has better interest rates than being offered by major public/private sector banks to their senior citizen depositors.  It has a maturity tenor of five years and a cap of Rs 9 lakh for joint account holders and Rs 4.5 lakh for individual investors. The Present rate of interest is 6.60%.

v  Sovereign Gold Bonds : -  It is one of the best avenues to invest  as it has sovereign guarantee of Govt. and yellow metal has given far much better returns than any mutual fund schemes or any stock market.  The Govt. of India open tranches for application at selected periods, mostly during festivals when there is a rush to buy physical gold. An individual can buy up to 4 kg of Gold and can get interest of Rs 2.50% per year on the investment.  The investment is exempt from capital gains and the tenor is 8 years. Moreover, the return of market value of Gold in bank account makes it a good and sound investment as Gold price has increased almost 4 times in last decade.

v  SBI We Care deposit  :-  State Bank of India, to cater to the growing concern of senior citizens regarding falling interest rates on deposits also launched  We care deposits  at a interest rate of 6.20% for the tenure of 5 to 10 years. The scheme was earlier valid till 30.09.2020 and now has been extended till 31.12.2020.  It is one of the safest avenues to park income and get better returns.

v  RBI saving Bonds  : -   RBI often issue bonds which are due for maturity in 7 years. The present rate of interest is 7.15%. Any individuals and HUFs can invest in the scheme.  Minimum amount of investment is Rs 1000, with no cap on upper limit.  It is one of the best sources of investment for High Net worth (HNIs) senior citizens with money to spare. Though there is one catch, bond rates are subject to change every six months.

 

v  Other avenues: - Senior citizens have the option to invest in other avenues as well. Fixed maturity plan of mutual funds gives benefit of indexation and are comparative safer than equity funds.  Corporate bonds of companies rated AA or AAA also gives returns in range of 7 to 9% and pretty secure investment avenue. Kisan Vikas patra & NSC offering a return of 6.9% & 6.8% compounded annually respectively is also tailor made for senior citizens and serve as excellent investment option.

Let’s have a recap of various features of available schemes in a tabular manner.

Parameters	SCSS	PMVVY	Wecare	Tax free bonds	RBI bonds	Gold Bonds	Post office (MIS)
Tenor	5 years, extendable up to 8 years.	10 years	5 to 10 years	10 to 20 years	7 years	8 years	5 years
Tax status	Taxable but applicable under 80 c exemption	Taxable but applicable under 80 c exemption	Taxable	Non taxable	Interest is taxable but exempt from wealth tax	Interest is taxable but exempt from capital  gains	Taxable but TDS not applicable.
Min. amount	Rs 1000/-	Rs 1,56,658/- for a monthly pension of Rs 1000/-	Rs 1000/-	Rs 1000/-	Rs 1000/-	1 gram	Rs 1500/-
Max. amount	15 lakh /- per individual	15 lakh/-  per individual	2 crores	50 lakh/- per individual	No cap	4 kg per individual	4.5lakh/-  per individual
Interest rate	7.40%	7.4%	6.20%	5.5% to 6.5%	7.15%, reset every six months	2.5%	6.60%

 

The golden rule of wealth management is to save first, spend later. Senior citizens can improve their liquidity position by not just investing in right and safer options, but reducing or covering up their expenses.  Having a comprehensive health insurance cover for the family, reducing on unnecessary expenditure, avoiding impulse shopping and proper use of credit card like scheduling EMIs or not maxing out the limit of card can also help senior citizens in having a better control over their financial portfolio.  Moreover one should diversify their portfolio and not keeps all the eggs in the same basket to minimize further risk. Few investment options are good for long term wealth appreciation, few for shorter terms and few for raising the funds for meeting expenses for daily chores.  Senior citizens should hence try a potpourri of different investment options.

 

 

 

A stroll in the park, time spent with loved ones and a positive attitude towards life can also help soothe the nerves of senior citizens in these trying times.  After all, they have been through all these testing times in their fruitful life and they can garner inspiration from the King Solomon words “This too shall pass away”.   It just takes little financial planning and prudence on their part and the crossroads can become a two way scenic broad highway with numerous vehicles plying at an equidistance level and songs buzzing in the background. 

Let’s hum a little bit, what say?