Interest rates have been steadily decreasing over the years, making it harder for senior citizens with minimal assets to make ends meet. This is particularly true when they have no way of supplementing their income after retirement and cannot take any unnecessary risks with their money. Not just that, Government offers a variety of lucrative investment options for Senior Citizens. They are quite straightforward i.e., easy to understand & also effective. In this piece, we will explore government-issued bonds that may be of interest to senior citizens.
What investment options are available for Senior Citizens to invest in India?
Overall, there are many investment options available for Senior Citizens to invest in. However, here are some of the bonds issued by a government or the investment plans that invest in government bonds that a senior citizen can prefer.
1. RBI Floating Rate Savings Bonds - RBI’s floating rate Savings bonds are issued by Government & come with a tenure of 7 years. There is no age cap or maximum amount that can be invested in these bonds. These bonds can be purchased through authorized banks both in physical and digital mode. These bonds have a seven-year term and are redeemed at face value after that. These bonds are available to anyone who is a resident of India. A resident who later becomes a non-resident is permitted to keep these bonds.
Also, the interest on these bonds is variable, and the interest for a half year is declared in advance by the RBI. These bonds' interest is taxable and subject to a tax deduction at the source.
2. Tax-Free Bonds - Under the Income Tax Act of 1961, tax-free bonds are government securities whose interest is totally non-taxable but does not count towards total income. Tax-Free bonds are seen as a low-risk investment option by most investors. These bonds have a minimum 10 maturity period. Usually, the government uses the proceeds from such bonds to fund projects like infrastructure and housing initiatives. Add to that, these bonds are often issued by government-backed entities to raise funds for a specified purpose. The chances of these bonds defaulting are quite minimal.
Also, Investors in the upper brackets will benefit from these tax-free bonds. Longer tenure, reduced default risk, and fixed income for a prolonged duration make these bonds a good choice for investors like senior citizens.
3. Government Savings Bond - RBI bonds are also known as Government of India Savings Bonds (GOI taxable bonds). These bonds are backed by sovereign guarantees and have a 7.75 percent interest rate. The scheme includes two types: non-cumulative, which pays interest bi-annually, and cumulative, which pays interest upon maturity.
The amount that can be invested in these bonds is not limited, however, earnings are taxed according to the income tax bracket. Investors between the ages of 60 and 70 have a 6 lock-in period, while those between the ages of 70 and 80 have a 5 lock-in period. For individuals above the age of 80, the lock-in period is only 4 years.
4. Fixed Rate Bonds - A fixed-rate bond is a debt security that pays the constant interest for the entire duration of the bond or until maturity. In these bonds, the coupon rate refers to the interest rate on a bond. Because the bond has a fixed coupon rate for the whole period, it is classified as a fixed-income security. These bonds are available to investors who want to receive a guaranteed rate of interest for a set period of time.
5. Debt Mutual Funds - Fixed-income financial securities are the focus of debt funds. When compared to equity funds, it is deemed safer because debt funds have no equity allocation. The risk associated with debt funds is determined by the type of fund and interest rate variations.
When interest rates are falling, long-term debt funds may give better returns. When interest rates rise, short-term debt funds provide better returns. One can consider investing in mutual funds with a better credit rating. Although not all Debt Mutual Funds invest in only government bonds there are many such funds that invest in government bonds.
So Senior Citizens, looking for a safer investment option can opt for these funds. These funds also come with a minimum investment option & since mutual funds invest in many government bonds at a time, the risk would also be low in these funds.
India, on the other hand, has a large number of investors across all investment sectors. But specifically, when it comes to Senior Citizens investing is important as you will need to plan your investments ahead of time, evaluate all of your life goals, and budget for the costs that come along with it to live happily & financially secure in the retirement years. One can choose a fund/bond that suits the best according to your needs, financial goals & time period for investing.