Some money should also be invested to create a health corpus, using instruments like a fixed deposit (FD), liquid fund or ultra short term fund, over and above the health insurance policy.
Finally, those who have just retired should have a higher allocation to equities compared to those of a more advanced age.
Today, while the State Bank of India
offers 6.75 per cent interest to senior citizens
on a one-year FD, banks like RBL
offer 7.6 per cent. At an interest rate of 6.75 per cent, an individual can invest around Rs 740,000 to exhaust the Section 80TTB
limit. As for choosing the right FD, Rahul Jain, head, Edelweiss Personal Wealth Advisory, says: “Spread your FDs across banks. Choose banks that are fundamentally strong and don't blindly chase those offering higher rates of interest.” The next instrument a senior citizen should opt for is SCSS.
An individual may invest up to Rs 1.5 million in it. The spouse, if she has a separate income stream, can invest another Rs 1.5 million. It offers an interest rate of 8.3 per cent per annum payable quarterly for five years. Investment in this scheme also qualifies for 80C deduction. Interest income from it is, however, taxable.
One attractive feature of both SCSS
is that the rate of return remains fixed for the entire tenure. Senior citizens
in the highest tax bracket should also consider tax-free bonds purchased from the secondary market, where they are currently available at a yield of 6.2 per cent. “Those in the higher tax brackets may also consider debt mutual funds because of their advantageous tax norm of 20 per cent tax with indexation,” says Anil Rego, CEO, Right Horizons.
Those who don't need the cash flows from it may invest in Public Provident Fund (PPF) for its 7.6 per cent tax-free return.
Allocate to equities:
Some allocation to equities is a must to ensure that a portion of the corpus is able to combat inflation. Senior citizens
may use large-cap exchange traded funds, large-cap active funds, multi-cap funds, and dynamic asset allocation funds. In very large corpuses, small allocations may also be made to mid-cap funds and international funds. Sell equities and reallocate to debt whenever markets run up.