If you have just retired and are
looking to deploy the retirement money, the simplest option may seem like bank
fixed deposits.
However, you may miss out on
other superior options available to build a diversified retirement income
portfolio that also returns well.
Here is a low down on your
options and the suitability of each such option, based on your tax slab.
At 8.6% per annum (from April 1,
2016, but subject to reset every quarter), this is the best rate that a 60-plus
investor can get in the present scenario.
This rate will be fixed for five years - that is until maturity - even
as new rates (linked to government security yields in the market) will be
announced every quarter. This is an ideal
option for multiple reasons:
One, the post office interest
rate will likely remain higher than bank interest rates.
Two, the quarterly interest payout gives
you the needed income flow.
Three, it is eligible for
deduction under Section 80C of the Income Tax Act, in case you fall under tax
bracket and want to avail deduction. In fact, in the year of your retirement,
when you still remain in the high tax bracket, this can be an ideal 80C
investment option.
Four, in later years, although
the interest is fully taxable, given that you will fall under lower tax
brackets, than in your earning years, the post-tax returns won't be terrible.
Five and very importantly, it is
sovereign guaranteed. Remember, even bank deposits (and your savings account
together) carry insurance and only up to Rs 1 lakh. The only drawback is that
there is limit of Rs 15 lakh that you can invest (across all accounts,
individually or jointly) at any point. Besides, TDS will be deducted for all
interest payouts exceeding Rs 10,000 a year (similar to bank). Hence, make sure
Form 15H is submitted if you are below the taxable limit for senior citizens.
Suitability:
It is suitable for all retired
investors across tax brackets. It remains an ideal investment option in the
year of retirement, especially to avail Section 80C tax benefit.
Bank fixed deposits (FDs)
If not for anything else, the
relationship that you have with your bank and the services that you will avail
there, especially as a senior citizen, will entail that you park some money in
bank deposits. While you will enjoy special rates for senior Citizens, this is
certainly not the best time to lock a majority of your funds in banks. The
interest is taxable at your slab rate. Here again, submit your Form 15H to
avoid TDS if you are not within the taxable limit.
Suitability:
Bank FDs are a good option to
diversify. They are better if you are not a tax payer. If you are one, ensure
you keep your exposure to this avenue limited in a low interest rate scenario
such as the present one.
Corporate fixed deposits
Do not scout for high returns in
this space. Go for two to three well-known NBFCs, which are also governed by
RBI to ensure you park your money in safe avenues. As the interest rate is
likely to be higher than bank FDs, this is a must have for diversification
purposes. While interest rates have fallen in this segment as well, they still
remain higher than bank deposit rates.
Suitability:
Good diversification option for
investors who are not in the tax ambit and are in the low tax bracket. For
those in the high tax bracket, the post tax returns will not keep pace with
cost of living, especially medical expenses.
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