Investment Options For Deploying Your Retirement Money


One challenge that many retirees face is the selection of investment avenues to deploy their retirement funds. The total cash inflow at the time of retirement typically runs into lakhs of rupees. This can be in the form of provident fund, pension, superannuation, gratuity, leave encashment, etc.

Usually, money also pours in from long term investments like public provident fund (PPF) and insurance policies whose maturity concur with the time of retirement.

In the absence of regular monthly salary income, a retiree has to invest the funds in such a way that they provide a steady stream of income to meet the day-to-day expenses till lifetime. The safety of principal becomes crucial along with the security of returns.

Discussed below are some conservative and safe investment options where one can deploy the hard earned money after retirement.

Bank Fixed Deposit (FD)

This is one of the most preferred investment options for many retirees. Bank FDs provide stable returns. These are very liquid in nature and can be encashed any time. FDs can thus be very useful during any contingencies.

Senior Citizens Savings Scheme (SCSS)

This is another very popular choice for investing the retirement funds.  As the name of the scheme suggests, a person who has attained the age of 60 or above is eligible to invest. The scheme offers an interest of 9 per cent per annum payable on a quarterly basis. The SCSS has a maximum investment limit of Rs.15 lakh and a lock-in period of five years. The depositor may extend the account for a further period of three years. The interest income is taxable under this scheme.

Post Office Monthly Income Scheme (POMIS)

This scheme has a lock-in period of six years. The interest offered is 8 per cent per annum payable monthly and does not enjoy any tax exemption. Additionally, five per cent of the deposited amount is given as bonus at the time of maturity. So the effective yield comes to 8.5 per cent. The minimum investment required under this scheme is Rs.1,500. The maximum limit is Rs.4.5 lakh in case of single and Rs.9 lakh in case of joint account.

Post Office Time Deposit Account

Under this scheme, the interest is compounded quarterly. The duration varies between one year and five years. A one year account yields an interest of 6.25 per cent per annum. Similarly a 2 year account offers an annual interest of 6.5 per cent, three year 7.25 per cent and five year 7.5 per cent. The interest income is taxable and payable annually. The deposit requires a minimum amount of Rs.200 and there is no maximum limit.

Post office recurring Deposit Account

This scheme has a lock-in period of five years. It offers 7.5 per cent interest per annum compounded quarterly. The interest income is taxable. The account can be extended for an additional period of five years. It requires a minimum investment of Rs.10 and there is no maximum limit.

RBI 8 Per Cent Taxable Bonds

As the name suggests, these bonds are issued by the Reserve Bank of India for the general public. The interest offered is 8 per cent and the income is taxable. The bonds are issued for a period of six years. A minimum investment of Rs.1000 is required in these bonds while there is no maximum limit.

Kisan Vikas Patra (KVP)

This is another risk free option for investment. The KVP has a maturity of 8 years and 7 months. The interest offered is 8.25 per cent per annum and is taxable. The minimum investment in KVP is Rs.100 and there is no maximum limit.

National Savings Certificate (NSC)

This scheme offers an 8 per cent interest compounded half yearly. For every Rs.1,000 invested in NSC, the amount at maturity receivable is Rs.1,601. The effective yield thus comes to 8.16 per cent. The scheme has a lock-in period of six years. The interest income is taxable under this scheme. The minimum outlay required in NSC is Rs.100 and there is no maximum limit.

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While most of these fixed income investments are safe and government backed, the returns are not compelling enough considering the high level of inflation. With the annual inflation hovering around 9-10 per cent, the real rate of return (adjusted for inflation) on most fixed income investments discussed above is negative. Presently, most banks are offering attractive interest of 9-10 per cent per annum on fixed deposits for a period of 1-2 years. For senior citizens, the annual interest rate could go up to 10.5 per cent. These returns are higher than most post office saving schemes. So bank FDs are a more suitable option presently due to high returns and liquidity.

For those who need a regular stream of monthly or quarterly income, they can opt for SCSS and POMIS. For those who require a real kicker in their overall portfolio return, they can invest in the stock markets. It would be advisable to invest indirectly via mutual funds where fund managers will help you manage your retired money better. Again, it would be wise to invest only 10-20 per cent of your total retired corpus in equity mutual funds and the rest in debt instruments.

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