For many, retirement brings about a major change in their lives i.e. halt in the monthly income, but what continues is the outflow of money through daily necessities and rising medical needs. An additional challenge is to maintain your standard of living vis-à-vis inflation, so you must use your retirement corpus wisely.
Here are the best ways to maximise returns from your retirement corpus.
Senior Citizens Saving Scheme
This Senior Citizens Saving Scheme is available in banks and post offices across the country for any person above 60 years of age. It is a one-time investment scheme and can be opened as a joint account with a spouse even though the cumulative upper investment limit of all accounts is Rs 15 lakh. The interest is credited on March 31, June 30, September 30 and December 31 of each year. The scheme has a tenure of 5 years, which can be extended for another 3 years on maturity.
The interest rate is calculated every quarter and is 100 basis points above the 5-year government bond yield. It is 8.4% p.a. currently and remains fixed once invested. Foreclosure is allowed after one year but attracts a penalty of 1.5% if closed before 2 years and 1% thereafter. No foreclosure penalty is levied after 5 years.
One must remember that even though the investment is eligible for tax deduction under Section 80 C, the interest earned is fully taxable and is subject to 10% TDS if it exceeds Rs 10,000 in a financial year.
Post Office Monthly Income Scheme
The maximum investment in this one-time investment scheme is Rs 4.5 lakh for individual ownership and Rs 9 lakh for joint ownership. The current interest rate is 7.80% per annum, payable monthly.
This 5-year investment scheme promises safe and guaranteed returns in the form of fixed monthly income but the scheme does not qualify for any tax benefit and the interest is fully taxable in your hand even though no TDS is cut. The interest can be automatically credited to your post office savings account or you can withdraw in cash or through post-dated cheques. If you do not withdraw your money after the completion of the 5th year, your money will earn simple interest of post office savings account up to 2 years only and will not earn any interest thereafter.
One time-tested method to beat inflation is to invest in Mutual Funds. There are many types of MFs to choose from. You can invest into equity MFs including large-cap and balanced funds with some exposure to monthly income plans also if you want stable returns. If you are not averse to volatility then you can also invest in thematic and sectoral funds, including mid- and small-caps. Another good option is Debt MFs. Investing in MFs gives you liquidity, diversification of assets and a chance to benefit from skills of professional managers.
The rate of returns depends on the market and there are no assured returns. The gains from MFs are taxed in accordance with capital gains tax rules.
Bank Fixed Deposits give safe and fixed returns but the rates of interests have been going southwards over the past few years. Senior citizens do get extra interest over and above the normal interest applicable. To get the maximum benefit out of FDs you need to spread your investment across maturities and plan their re-investment.
Non-banking companies too have their FD schemes which generally offer better returns than bank FDs, but be cautious and thoroughly check the standing of the company before investing in such FDs.
Three other options for investment are tax-free bonds, reverse mortgage and immediate annuity schemes of life insurance companies.
Park your retirement corpus in a judicious mix of the above investment options and lead a happy and financially independent retired life.
(The author is the CEO of BankBazaar. Views expressed in the article are personal.)