Finance Minister P Chidambaram had announced the launch of a dedicated scheme for senior citizens in his Budget speech and the same has now been initiated.
The 'Senior Citizens Savings Scheme' is available for citizens above 60 years of age. However, a provision has been put in place for individuals who have crossed 55 years of age. Such individuals may invest subject to the conditions that:
The person has retired under a voluntary retirement scheme or a special voluntary retirement scheme on the date of making the investment,
The investment is made within three months of the date of retirement,
And a certificate from the employer, indicating the fact of retirement, retirement benefits, along with period of such employment with the employer, is attached with the application form.
Investors are permitted to make single deposits in multiples of Rs 1,000 and the upper limit on investments has been set at Rs 15,00,000. The scheme will have a 5-year tenure with a clause to extend the same for an additional period of 3 years.
Now the attractive part -- the returns. Deposits under the scheme will offer a return of 9 per cent p.a., which makes the scheme the most lucrative one in the domain of small savings schemes. Other schemes like the NSC and PPF offer 8 per cent returns at present.
Which post-office scheme offers the best return?
Since the scheme is targeted at senior citizens, providing returns at regular time intervals becomes vital. The Senior Citizens Savings Scheme takes care of this need by providing interest income once in each quarter on the following dates, i.e. March 31, June 30, September 30 and December 31.
Liquidity is a prime concern for senior citizens too. This requirement has been addressed to by providing a clause for premature encashment. Investors will be permitted to prematurely liquidate their investments at any time after the expiry of one year from the date of opening of the account subject to the following conditions:
In case the account is closed after the expiry of 1 year but before the expiry of two years from the date of opening of the account, an amount equal to 1.5 per cent of the deposit shall be deducted.
In case the account is closed on or after the expiry of two years from the date of opening of the account, an amount equal to 1 per cent of the deposit shall be deducted.
Now let's look at the downside of the scheme. The returns from the scheme will be taxable. Also NRIs and HUFs (Hindu Undivided Families) are not eligible to participate in the scheme.
What should your strategy be?
If you are a senior citizen who is looking at earning regular returns without taking on too much risk, the Senior Citizens Savings Scheme is the place to be.
However, we recommend that you also invest a part of your investible corpus in the Post Office Monthly Income Scheme (POMIS). POMIS with 8% return p.a. (plus 10% bonus on maturity) apart from offering attractive returns does so on a monthly basis vis-à-vis the quarterly returns offered by the Senior Citizens Savings Scheme.
Secondly investments in POMIS also enjoy tax benefits under Section 80L of the Income Tax Act, while the returns from the senior citizens scheme are taxable.
Investing in both the schemes will enable investors to enjoy attractive returns as well as tax benefits. Plus it will help investors diversify their investments across different schemes, which is always a smart move.
