My husband passed away in December 2023. Now with his death, I can only invest Rs 30 lakhs in Senior Citizen Savings Scheme (SCSS) in my name instead of Rs 60 lakh previously done for both. Where can I invest this money now, where I can get maximum, risk-free returns with a lock-in period of 5 years.
Name withheld
Reply by Hrishikesh Palve, Director, Anand Rathi Wealth Limited
We empathize with the loss of your husband and would be glad to help you in this difficult situation. The rate of return for SCSS is 8.2%, and it comes with a lock-in period of 5 years. You cannot stay invested in this scheme for more than 8 years. Ideally, it would make sense to invest in mutual funds instead, without compromising on your liquidity.
Investing in a mix of equity and debt is the best option available to you. We advise creating investment baskets based on your liquidity requirements. If you do not need any portion of the Rs 60 lakhs in the next 3 years, you can invest it in a basket of equity and debt funds at a potential return of 10.4%. In case any of this money is required in the near future, you can park that portion in debt funds.
For your 80C benefit, you can invest in ELSS funds instead of the Senior Citizen Savings Scheme. For the debt portion, if you are not in the highest tax slab, you can consider investing in FDs for senior citizens instead of debt funds from the Target Mutual Fund category. This will allow you to keep earn decent return while keeping risk under control.
Though the Senior Citizens Savings Scheme (SCSS) is a reliable option for elders and is tailored to meet unique financial needs of retirees, ensuring that they have a steady income stream during their post-retirement years.
Top features of SCSS
SCSS, short for Senior Citizens Savings Scheme, stands out for its quarterly interest payouts, which offer retirees a steady stream of income to cover essential expenses during retirement.
The interest rate is set by the government and reassessed every three months to maintain competitiveness relative to alternative savings options. At present, the interest rate for July-September 2024 quarter is 8.2%.
It’s noteworthy that the interest gains from the SCSS are subject to full taxation, and individuals in their golden years should carefully consider this aspect when mapping out their financial strategies.
SCSS has a duration of five years, with the opportunity to prolong it for an extra three years following maturity.
Despite being tailored as a long-range investment strategy, the scheme presents a degree of adaptability through premature withdrawal options.
Withdrawal is allowable after the initial year, subject to penalties: a 1.5% reduction if the withdrawal occurs after one year but prior to two years, and a 1% reduction if made post the two-year mark.
This aspect furnishes a measure of financial versatility for seniors who may necessitate sudden access to their resources.
Bank FDs
Senior citizens have the opportunity to maintain steady monthly income streams during their retirement phase by choosing to invest in bank Fixed Deposits (FDs). In general, banks extend a higher interest rate of 0.50 percent to senior citizens on FDs compared to the regular rates provided on fixed deposits of varying tenures. The interest earned from these fixed deposits is distributed to investors on a periodic basis, which can be on a monthly, quarterly, semi-annual, or annual schedule.
Debt Funds
Senior citizens looking to achieve a long-term financial objective or have a time horizon of five years or more, equity mutual funds are likely to be suitable for your investment portfolio. On the other hand, if the financial goal is short term, debt funds would be more appropriate.
Senior citizens should allocate approximately 60% to 70% of their mutual fund investments to debt funds due to their lower risk profile. Equity funds carry higher risks, and it is advisable to allocate only a small portion of capital to them.
The taxation of debt funds is not determined by the seniority of the investor, indicating that senior citizens do not receive any special privileges in this regard. Therefore, you should note that capital gains tax will be applicable to your investment.