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Experts suggest that it is best to invest when you are young. But what about investing in old age? The good news is that there no age limit when it comes to investing. But senior citizen investors do have to consider making comparatively safe investments as compared to young investors. That’s why, the choice of investment options for senior citizens is different from the investment choices that younger investors might make.
In the below sections, we will discuss the key criteria to consider when choosing safe investments for senior citizens and a short list of 5 popular safe investment options for senior citizens in India.
4 Key Criteria For Choosing Safe Investments for Senior Citizens
As per the Income Tax Act, senior citizens are defined as individuals who are between the age of 60 years and less than 80 years. While individuals aged 80 years or more are designated as super senior citizens. For simplicity we have considered both senior and super-senior citizens as individuals who would want to make safe investments. While no investment plan is completely without risk, a few factors that one can consider to reduce the overall risk of an investment are below:
1. Investment Risk
Some investments like equity mutual funds and shares can witness considerable ups and downs as a result of changing market conditions. For senior citizen investors this can lead to a high degree of risk to their investment. As a result, suitable safe investments for senior citizens in India are options that can help preserve wealth so that the principal amount invested is not impacted or minimally impacted by changing market conditions.
2. Returns
While most investors tend to focus on investments that can get them high returns, such investments often feature a high degree of risk. Senior citizens seeking safe investments would therefore prefer lower risk investment options such as ones that provide guaranteed returns. This is one of the key reasons why bank fixed deposits and corporate deposits that offer assured returns are popular among senior citizen investors.
3. Financial Needs and Goals
Financial requirements and goals need to be understood before you invest in an investment scheme. You should always go for a plan that can offer you returns that are adequate to meet your financial needs. As a senior citizen, your financial needs can be both short term emergency expenses and the longer term need for financial security. As various health issues come with old age, you must consider making investments that can be withdrawn with minimal hassles in an emergency while ensuring your wealth is protected to manage your long term lifestyle expenses. Alternatively, you might desire to have a regular income from your investments so that you can cover your monthly expenses.
4. Investment Tenure
The investment duration is an important factor that you need to consider before investing. How long do you wish to stay invested? Additionally, is there a penalty for premature withdrawal in case you cannot stay invested for the intended period? These considerations also need to be made along with financial security when choosing investment plans for senior citizens.
You might have realized that no single safe investment for senior citizens can fulfil all the above criteria. So, senior citizens have to allocate their available savings across multiple safe investments. In the below section we will discuss some of the top safe investment choices available to senior citizens in India.
What are 5 Top Investment Options for Senior Citizens in India?
There are currently quite a few safe investment plans that might fit the above criteria for senior citizen investors. However, below is a short list of the 5 top choices that senior citizen investors in India should consider in the current scenario:
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Senior Citizen Saving Scheme (SCSS)
A Senior Citizen Saving Scheme (SCSS) is backed by the Government of India with the objective of helping senior citizens get assured returns and regular income on lump sum investments up to Rs. 15 lakh. Senior citizens can make a minimum deposit of Rs. 1000 to get started and the SCSS account can be opened individually or with a spouse as the joint holder. The account matures in 5 years, however, it can be subsequently extended for a period of 3 years. The Senior Citizen Saving Scheme interest rate, till the quarter ending September 2022 stands at 7.40% p.a. The icing on the cake is that this safe investment which is only for senior citizens also qualifies for tax benefits under Section 80C of the Income Tax Act, 1961.
Annuity Plans
Annuity plans are a popular lump sum investment offered by life insurance companies that can provide a monthly income over the investor’s lifetime or for a specified period. Annuity plans come in two types: deferred annuity and immediate annuity. A deferred annuity pays out after a few years of the accumulation stage so is more suitable for younger investors planning their future retirement. Immediate annuity plans offer payout right after a lump sum deposit is made so are more suitable for senior citizen investors seeking regular income from safe investment. Returns from an annuity plan are locked-in at the time of investment, so income generated from this investment is predictable which makes it ideally suited to the needs to senior citizens.
Senior Citizen Bank Fixed Deposit
Senior citizen FD is one of the safest and most popular investments for senior citizens in India. This type of FD offers assured returns to senior citizens, however, the exact interest rate can vary from one bank to another as well as on the basis of tenure. Senior citizens can also select the frequency of interest payouts – monthly, quarterly, or annually, as per their requirement for regular income. Additionally, many banks offer preferential higher interest rate on fixed deposits for senior citizens as compared to FD investors aged less than 60 years. While senior citizen FD is a near unmatched safe investment that allows the option of premature withdrawal, there is a penalty if the FD is broken before completion of the contracted tenure.
Additionally, senior citizens also have the option of making 5-year tax saver FD investments in case they wish to save taxes under Section 80C on their FD investments. However, premature withdrawal is not allowed in the case of tax-saver FD.
Debt Mutual Funds
Debt mutual funds do not offer assured returns hence most senior citizens prefer other investments that are considered safe. However, a key benefit of debt mutual funds over assured return investments like SCSS or bank fixed deposits is the high level of liquidity. Debt mutual fund investments like liquid funds and ultra short duration funds can generate returns comparable to fixed return schemes but there is no penalty even for withdrawals made within a short period like a few months. While not the first choice for senior citizens seeking safe investments, this option can be used to keep funds handy for any financial emergencies that might occur.
Debt Mutual Funds
Debt mutual funds do not offer assured returns hence most senior citizens prefer other investments that are considered safe. However, a key benefit of debt mutual funds over assured return investments like SCSS or bank fixed deposits is the high level of liquidity. Debt mutual fund investments like liquid funds and ultra short duration funds can generate returns comparable to fixed return schemes but there is no penalty even for withdrawals made within a short period like a few months. While not the first choice for senior citizens seeking safe investments, this option can be used to keep funds handy for any financial emergencies that might occur.
National Pension System
The National Pension System is primarily considered to be an investment to help fund post retirement finances. NPS invests in various market linked securities, so returns are not guaranteed and the principal amount invested is also at risk. While these features are not considered to be suitable for the needs of senior citizen investors, those willing to take some risk with their investment and seeking long-term wealth creation as well as NPS tax benefits may opt for this investment. The maximum age of entry into NPS is currently 70 years and mandatory superannuation and purchase of annuities needs to be nade when the investor is 75 years old. While this investment might be considered low on safety, NRI senior citizens who are not eligible for guaranteed returns investments like SCSS.
Bottom Line
As you can investing post-retirement works quite differently as compared to when one has a regular income from a salary or business. So your investment choices will also have to change accordingly to focus on safety and capital preservation as compared to the wealth creation goals one might have earlier in life.
Frequently Asked Questions (FAQs)
1. Are short-term investment options or long-term investment options better for senior citizens?
There’s no definite answer. It depends on your financial goals and investment tenure. If you prefer to invest in safe investments with low risk, it’s better to invest in short-term investment options as returns will tend to be low. However, if you can afford to take higher risks when seeking high returns, long-term investment options are preferable.
2. Is there a minimum or maximum amount that I need to invest in a senior citizen fixed deposit?
The minimum amount that needs to be invested at the time of opening a Senior citizen FD differs slightly from bank to bank but in most cases it is Rs. 1,000. Currently there is no limit on how much you can invest in a fixed deposit account.
3. Can you open a joint SCSS account with anyone?
No, if you want to open a joint SCSS account, you can open it with your spouse only. Other close family members like son or daughter can be nominee for the senior citizens savings scheme account.
4. Can senior citizens invest in National Savings Certificate?
Yes resident Indian senior citizens can invest in National Savings Certificate (NSC). However, under existing rules, NRIs such as non-resident Indian senior citizens cannot invest in this scheme.
5. Can Non-Resident Indians set up an NPS account?
Yes, Non-Resident Indian senior citizens can set up an NPS account. However, some deposits made by NRI are subject to regulatory requirements as prescribed by RBI.
Sources:
https://www.npstrust.org.in/sites/default/files/NRI_eNPS_FAQ.pdf
https://www.tickertape.in/blog/nsc-interest-rate/
https://economictimes.indiatimes.com/wealth/invest/process-of-investing-in-the-senior-citizen-savings-scheme/what-about-joint-account-holders/slideshow/79365732.cms
https://www.icicibank.com/blogs/fixed-deposits/fd-for-senior-citizens
https://www.livemint.com/money/personal-finance/what-are-the-investment-options-for-senior-citizens-11652979536274.html
https://www.hdfcbank.com/personal/invest/nps-national-pension-system
https://www.angelone.in/knowledge-center/mutual-funds/mutual-funds-for-senior-citizens
https://www.icicibank.com/blogs/fixed-deposits/fd-for-senior-citizens
https://www.livemint.com/money/personal-finance/what-are-annuity-plans-how-they-work-11611738824676.html
https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=62
https://economictimes.indiatimes.com/wealth/plan/how-to-help-the-elderly-make-better-investment-decisions/articleshow/69383738.cms
https://www.icicibank.com/blogs/investment/high-return-investment-options-for-senior-citizens
ARN No: Sept22/Bg/28
