Different Investing Products

Traditional Investing Products

The guiding principle at retirement stage should be that the investment makes monthly or quarterly
payments that take care of everyday financial needs.

TRADITIONAL OPTIONS SENIOR CITIZENS SAVINGS SCHEME (SCSS)

 Run by: Central government

 Entry barrier: 60 years. However, for voluntary retirement at 55 are also eligible.
 Interest rate: 8.6 % pa, (higher than other debt instruments with a quarterly pay-out option)
 Interest credited: March 31, June 30, September 30 and December 31.
 Invest up to: Rs 15 lakh through post offices or designated public sector banks.
 Lock-in: 5 years & can be extended for another 3 years.
 Deductions: Under Section 80C. If the income > Rs 10,000, tax is deducted at source.
 Another factor that makes SCSS a go-to product is liquidity.
 Premature withdrawal: Fine of 1-1.5 per cent on the invested amount.

POST OFFICE MONTHLY INCOME SCHEME (POMIS)

 Run by: Central government

 Interest Rates: 7.8%
 Interest Credited: The return is credited to a designated account on a monthly basis.
 Investment cap: 4.5 lakhs for a single account, 9 lakhs for a joint account
 Maturity period: 5 years.
 Premature Withdrawal: On the other hand, a penalty is levied on premature withdrawal
 Easily transferred: Yes

POST OFFICE TIME DEPOSITS (POTDs)

 Run by: Central Government (These are similar to bank FD).

 Minimum investment: Rs 200 and, thereafter, in multiples of Rs 200.
 Cap: No cap
 Interest Payout: Annual. Interest is compounded on a quarterly basis.
 Investment Period: 1-5 years.
 Taxation- Eligible for deduction in 80C, though tax is not deducted at source.
 USP: Risk-free and offers guaranteed returns.

FIXED DEPOSITS (FD)

 Run by: Banks.

 Minimum Investment: There is no minimum investment requirement.
 Tenure: 10 years.
 Interest credited: Quarterly, semiannual or annual basis.
 Reinvestment Option: There is also an option for re-investment of interest.
 Interest Rates: Senior citizens get 0.25-0.5 per cent over and above the regular rate.
  Tax Exemption: Barring for tenures of five years and above, no tax exemption.
 Liquidity: The long term FD eligible for deduction under Section 80C, cannot be liquidated
 TDS: Attracts TDS and cess if it is more than Rs 10,000 in a financial year.
 Investment Protection: Risk is low only as long as the bank is in a good financial shape. In case
the bank goes bust, only Rs 1,00,000 is guaranteed (by the Deposit Insurance and Credit
Guarantee Corporation).

REVERSE MORTGAGE

 What is: In this, the retired person keeps a house as collateral with the bank. In return, the bank
makes monthly payments according to the value of the house. The borrower can opt for
monthly, quarterly, annual or lump sum payments. As reverse mortgage is a loan, the interest
rate is either fixed or floating.
 Suitability: Those who have a lot of real estate but not much free cash.
 Taxability: Not taxable. (amount received from the bank is considered a loan and not income)
 Period: Maximum is 20 years, after which either the borrower or the heir (in case of the death of
the borrower) can either repay the loan or sell the house and settle the transaction. The excess
amount generated in the process is passed on to the borrower or the heir.

MARKET-LINKED PRODUCTS

MONTHLY INCOME PLANS (MIPS)

 What is: Like post offices, mutual funds also offer income plans.
 Run by: AMCs
 Type of instrument: These are open-ended schemes that invest most of their money in debt
instruments. Only a small portion is put in equities.
 Suitable for: Conservative but still want some exposure to equity markets.
 Regular Income: From dividend payouts, which are tax-free for investors.
 Returns: No such surety about dividends from mutual funds.
 Interest paid: Monthly, quarterly or on annual basis. Also, the amount is not fixed.
 Taxation: The dividend is not taxed but redemptions are taxable as per capital gains rules.
 Redemption: Before 3 years attracts short-term capital gains tax.
 Profits: MIPs sold after 3 years are considered long-term capital gains are subjected to a flat tax
rate of 20 % with indexation.

FIXED MATURITY PLANS (FMPS)

 What is: Close-ended debt mutual funds with tenures ranging from 3 months to 3 years. These
are close-ended and cannot be redeemed like other mutual funds before maturity. They are
listed on exchanges where they can be bought or sold, though they are a highly illiquid
investment.
 Liquidity: Liquidity is an issue if market not performing at that particular time
 USP: Returns. It has been observed that debt mutual funds give returns that are 50-100 basis
points more than what is paid by FDs
  Taxation: More tax efficient for tenures over 3 years as enjoy indexation benefits with a flat 20
per cent tax rate. If the investment is for one to three years, the investor has to add the gains to
his/her income and pay tax according to her/his income tax bracket.
 Suitability: FMPs are more suitable for individuals in the 30 per cent tax bracket.

EQUITY MUTUAL FUNDS

 What is: Equity Investments in stocks or equity

 Diversification: Equity funds have widespread diversification, with very small initial investment.
 Capital Appreciation: As a company grows & earns profit, it usually chooses to reinvest the profit
to grow through increasing market share, product developments, etc. With the increasing
growth of the company, the market price of the stock increases, leading to capital appreciation
for the investors.
 Dividend: Investors get regular income in the form of dividends. These companies usually pay
out regular dividends in good & bad economic times, typically paid quarterly.
 Liquidity: Highly liquid investment.
 Brokerage: No brokerage or commissions, fund houses charge bank fees, commission, brokerage
etc., for their services which eventually reduces the profit earned by an investor. The more you
pay, the less you get. One of the major benefits of equity funds is that, very
 Professional management: They have an inherent design to tap professional expertise
 Taxation: But STCG at 15%. In case of debt mutual funds, both short-term and long-term
capital gains are taxed. Short-term capital gains are added to the income and taxed as per
the individual's income tax slab.

PPF (Public Provident Fund)

 Introduced by: Govt. of India

 What is: It is a tax free savings avenue
 Interest: 8.1% non taxable, compounded annually
 Deductions: Deposits made towards PPF accounts can be claimed as tax deductions u/s 80C
 Tenure: 15 years, accounts continuance is allowed beyond maturity for 5 years at every renewal,
with or without making additional deposits
 Annual deposit amount: Rs. 500 to Rs. 1.5 lakhs per year
 Withdrawals: Partial premature withdrawals can be made every year for 7 th year, withdrawals
are subjected to conditions. Complete withdrawal of funds can be made only at maturity