With life expectancy rising in India, retirees need to be more active in terms of their post-retirement investment planning, and should not solely be dependent on their pension. One needs to remember that risk-profile substantially changes once you attain retirement. This also calls for a readjustment in your investment portfolio with focus shifting on stable, less risky and possibly guaranteed returns.
You need to make the most of the collective corpus you get in the form gratuity, provident fund and your other savings or investments by building a solid retirement portfolio. This should be done after taking into consideration the erosion in your risk taking ability. Remember, asset allocation is the key here too and you should be ready to take less but calculated risks by opting for some equity instruments as well. However, before starting the investment process, you should set aside a sizeable corpus for medical emergencies, if not covered under any health insurance policy.
Here are a few investment options a retiree must consider to ensure a regular flow of income.
Bank Fixed Deposits
With senior citizens getting 25-50 basis points (bps) more interest as compared to regular deposit rates, Fixed Deposits (FDs) is one of the most convenient and safe investment options for retirees. Some of the banks are offering interest of as high as 7.75 per cent to senior citizens. This instrument offers a flexibility in tenure ranging from 1 to 10 years. You can park your funds across different maturities and institutions, which will not only provide liquidity to funds, but will also manage ‘re-investment risk’.
Senior Citizens’ Saving Scheme (SCSS)
One must opt for this scheme post attaining retirement as the rate of interest is among the highest at around 8.6%. The scheme offers you a quarterly payment, which is taxable. To open this, one can either go to a bank or the post office. SCSS has an average tenure of five years and this can be extended for 3 more years. The upper limit of investment in the scheme is Rs. 15 lakh. You are allowed to make premature withdrawals but only after a year of account opening. Investments made in SCSS are eligible for tax rebate under I-T Section 80C.
Post Office Monthly Income Scheme or POMIS
This is yet another investment scheme offered at the Post Office and quite popular among retirees. The current rate of interest is 7.3% which is payable on the monthly basis. It has a five-year lock in period with a maximum deposits of Rs 4.5 lakh. However, under a joint account, one can deposit till Rs 9 lakh. Investments made in POMIS do not qualify for tax rebate and the interest earned stands taxable. Retirees can avail this scheme for regular monthly payment. In case you want the interest earned can be directly credited to the savings account of the same post office. You can also direct to automatically transfer the interest from the savings account into a recurring deposit in the same post office.
The debt mutual funds should be given quite a good allocation in the post retirement portfolio. Though there is relatively lesser risk in such schemes, returns could, at times, be higher than any of the above mentioned instruments. One can choose from a range of debt funds – be it liquid schemes, gilt funds or credit debt funds. At the same time, if you have reasonable risk appetite, you should not mind putting a good percentage of your entire portfolio in equity mutual funds. Such an allocation can greatly help you in battling inflation woes during the post-retirement years. However, while choosing equity Mutual Funds, avoid any thematic or sector funds including mid-cap or small-cap fund. It’s preferable to go for diversified equity fund with a larger impetus on large-cap companies. This tends to offer stable returns with quite a reasonable margin of safety in the long-term.
The writer is CEO, BankBazaar.com