Senior citizen savings Schemes : For senior citizens dependent on their retirement income, low interest rates and inflation of bank FD are like a double whammy. Inflation rate neutralizes the interest earned on bank FDs and similar fixed income instruments. Nowadays, interest of 6 to 7 percent is being available on bank FD. Whereas the inflation rate is 6 percent. Hence the returns sometimes turn negative. So what should senior citizens do? For the elderly dependent on their retired corpus or pension, there are still some instruments that can give them better returns. Let us see which are the instruments which are giving more interest than bank FDs and in which retired investors can earn good money by investing.
floating rate rbi bond
These bonds are issued by RBI and their interest rate is linked to the interest rate on National Savings Certificate (NSC). Interest on the bond is accrued twice a year, i.e. on January 1 and July 1. During the first half of the year 2021, the interest rate has been fixed at 7.15 percent. The rate for the next half year has not been decided yet. The interest rate is fixed every half year. These bonds have a tenure of seven years. But the interest earned on these is subject to income tax.
Senior Citizens Savings Scheme (SCSS)
Almost all banks pay more interest under the Senior Citizen Savings Scheme. Under these schemes, an annual interest of up to 7.4 percent can be earned on FD. Each depositor can deposit maximum up to 1.5 lakh rupees in this. Interest is accrued on a quarterly basis and is fully taxed. TDS will be deducted if the interest income is more than Rs 50,000 in a year.
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credit risk funds
There are some mutual funds, which are called credit risk funds. These funds usually invest in such debt instruments, which are not highly rated. But they have higher returns. But before investing in such funds, one has to keep in mind what is its credit risk. Many a times, the companies in which these funds invest money are not able to return their principal or interest. In such a situation, the money of these funds gets stuck there. This kind of problem comes with these funds. Therefore, it is important to keep in mind which companies they are investing money in and how much risk can be there. In the last one year, such credit risk funds have given returns of 8.12 per cent. Returns earned through investments in this are considered long-term capital gains after three years and are taxed at 20 per cent after indexation. This reduces the tax liability to a great extent.