Few ‘savings’ options for the rainy day!

Financial analysts are advising the retired and the senior citizens to scout for alternate sources of income. The reason – high rates of inflation are nullifying the interest income on their savings.

With interest rates falling day-by-day, and most of the ‘saving’ instruments like NBFCs and banks turning risk prone, having a sizable amount as a saving is no longer a viable option to depend on for a rainy day. Does that mean one should not save for the future? The answer is definitely ‘No’. Here are a few options for you to save and be at peace with yourself.

Safe Investments - Schemes with Post Offices: 
Post Office Monthly Scheme: A person can invest up to Rs 4.5 lakh individually and up to Rs 9 lakh in a joint account under this scheme. The rate of return is 7.3 per cent per annum – payable monthly. The term is 5 years. This is a very good scheme for those who need a monthly amount to meet day to day expenses and are solely dependent on their savings like senior citizens. There is no tax benefit available.

National Savings Certificates: The rate of return is compounded at 7.6 per cent per annum. The period of holding is 5 to 10 years. There is no ceiling amount for investment. There is a facility to encash National Savings Certificates before maturity too. There is a Tax benefit under section 80C -i.e. Up to Rs 1,50,000 deductions allowed along with other specified investments under this section from gross total income of an assessee.

Kisan Vikas Patra:  The rate of interest for Kisan Vikas Patra is eight per cent per annum. The period of holding is nine  years 10 months. On maturity the amount is doubled. (Rate of interest is 7.3 per cent).  There is a facility to encash Kisan Vikas Patra before maturity too i.e., after two and a half years. There is no tax benefit available.

Public Provident Fund: A maximum of Rs 1,50,000 during a year can be deposited by an individual including that of minor children.  The duration of PPF account is 15 years. The rate of interest is 7.8 per cent per annum.  Loan & withdrawals are permitted as per rules. There is a double tax benefit i.e., under section 80C -i.e. Up to Rs 1,50,000 (since this is maximum permissible under PPF) deduction allowed along with other specified investments under this section from gross total income of an assessee. And interest earned on it is totally tax free-not to be added in the total taxable income. Every individual must open a PPF account for each member of the family. This account can be opened in some of the Nationalised Banks also.

RBI Bonds: The rate of return is 7.75 per cent per annum. No tax benefit is available. Interest is payable at half yearly / cumulative i.e., on maturity too. These bonds can be purchased from some of the nationalised banks also.

Risky ventures
Shares: Share market is very risky. In business – there is a principle that the more the risk more is the profit or loss. Those who wish to work on this principle can opt for the share market. For a safe investor – share market is a distant dream.

Properties:
Just for security reasons one must own a house and invest in a house property too but for that one should have surplus funds to invest. For this purpose, a portion of investments can be liquidated, and one should go for a loan for the same-which is now a day easily available. Even otherwise investment in house properties is a good investment. One can let it out and can get fixed monthly income too. Many senior citizens live on rental incomes only.

Even if you have your own savings, do buy house by taking a loan-as there are tax benefits for the same. But remember that there are always interest implications. One must plan for repayment of loan and interest too. Plan to buy your own house at a young age-say at the initial years of career. Start savings for it. If one has surplus funds, they can be invested in buying and selling of properties quite often to make good money out it. For tax implications consult a chartered accountant.

Mutual funds
These funds invest in stock market. Many persons invest in mutual funds including people who wish to have a fixed income per month like old people or conservative investors. But in mutual funds there is no guaranteed income per month as its income distribution depends on Net Assets Value (NAV), which  depends on share market as mutual funds invest in share market. If share market falls, their NAV too will fall. 

Fixed Deposits with banks / reputed companies:  A little portion of investment can be made in fixed deposits with banks (for easy liquidity) and / well-reputed companies like government / public sector or housing finance companies just to keep investments at different places.

Jewellery: Jewellery is not a good investment. But Indian traditions and customs require some portion of investments in jewellery too. 

Life Insurance (LIC): The objective here should not that of an investment for immediate returns but to have a financial security. Since in life insurance there is no return as much as in other investments but to have sum sizeable amount at a future date (future is most uncertain) one should invest in Life insurance too. It is better to get life insured at young age so that premium is less. More is the age more is the premium. There are different types of policies. The choice depends on an individual’s needs of funds in the long term. Those who wish to have some fixed amount of return-repayment at a certain fixed period can opt for money back policies. 

Now-a-days, life insurance too has started on NAV-based policies. Consult LIC agent for details.

Senior Citizen’s Schemes:  A senior citizen of more than 60 years can deposit up to Rs 15 lakhs maximum at 8.39 per cent per annum. The government has lowered the age limit for investment in seniors’ citizens savings scheme to 55 years for those parking their retirement benefits in it. But there is a clause that deposits shall be restricted to their retirement benefits or Rs 15 Lakhs, whichever is lower. This account can be opened in post offices and some of the nationalised banks also. There are no tax benefits.

Plan for convenience and taxes: One should plan wisely for immoveable properties. It can be purchased in joint names especially with spouse and or children as joint owner. It results in tax benefits too. For an ancestral house or properties, one should go for a “Family Settlement” / “Family Arrangements” / “Family Agreement” which does not attract duties and taxes. Consult a lawyer for it.  

WILL: WILL is a good instrument to transfer property without attracting taxes and duties. Even otherwise every person must have a ‘WILL’.  

The best course for a prudent investor is to invest in different kind of avenues so that even if some money is lost it will be a small amount. 

Mahesh Kapasi