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Senior Citizens Saving Scheme (SCSS) or Mutual Funds? Which is the Best Investment Avenue for Your Post-Retirement Life

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What is the significance of making post-retirement investment?

Your active incomes reduce post retirement. But your expenses remain the same. In fact, you can say that they increase due to inflation. And for all these expenses, you have to rely on your passive income. With advancement in the healthcare system, you might also run longevity risks, meaning more expenses for an extended life. And that is why it’s important that you increase your returns from savings with the help of post-retirement investment.

What are the different options available for an interested investor?

A lot of people who think about post retirement investment choose either mutual funds or Senior Citizen Saving Scheme (SCSS). Since both of these have their own benefits, you can choose any one. But when it comes to selection, you must take the following aspects into consideration -

  • Liquidity - It helps you redeem your funds exactly when you require them.

  • Effective rate of return after tax- This is to combat inflation.

  • Safety - Because you won’t have any active income post retirement.

Let’s delve deeper into the above-mentioned investment options, so that you can make an informed decision.

1) Senior Citizens Saving Scheme (SCSS)

Senior Citizen Saving Scheme (SCSS) resembles FD, and is a favourite among many people engaged in retirement planning. It’s a government scheme with a maturity of five years that has a fixed interest rate. SCSS can be obtained from the post office as well as the bank.

Now, let’s look at its features -

High safety- After all, it’s a government scheme.

Low liquidity - the funds cannot be redeemed up to one year. Withdrawal charges are levied when the funds are redeemed prematurely. After one year, the charge leied is 1.5%, and its 1% after two years.

The applicable interest rate is 8.3% as on July 1, 2017. But the income you earn from the interests is not tax free. The rate of tax is based on the tax slab that will apply to your total income.

At the interval of three months, the interest gets credited to your account.

You can take multiple schemes. But you can’t have more than 15 lakhs in all schemes combined.

2) Mutual Funds

Through mutual funds, investors can park their money in bonds and stocks. Mutual funds are far less risky than investing in direct bonds and stocks, because they are diversified, and managed by expert fund managers. Mutual funds have high liquidity, as the funds can be redeemed anytime. There are two types of mutual funds- debt oriented mutual funds and equity oriented mutual funds, both having their one investment merits. And there are two approaches to investing in mutual funds- lumpsum and SIP (Systematic investment plan).

Which one out of SCSS and Mutual Funds is the best post-retirement investment avenue?

Post retirement investment is important not just because it helps you meet post retirement expenses, but also because it gives you the power to combat inflation. Senior Citizen Saving Scheme (SCSS) is a great option if you want guaranteed return on your investment. But it has some flaws. For instance, it proves to be illiquid in the short term. And in the long term, it fails to fight inflation. That is why mutual funds are the best option for you. But your portfolio needs to have both debt and equity mutual funds. This will offer you liquidity in the short term. And in the long term it will help you counter ‘longevity risk’ by offering inflation beating returns.

How can you maximise profits from mutual funds?

Categorize your post retirement financial needs into different groups. For instance, short term, immediate, medium term and long term.

Use liquid mutual funds for meeting immediate expenses like emergencies. That means for the expenses that are going to arise within three to six months post retirement, you should invest in liquid debt funds, which will offer you better returns as compared to investments in savings bank accounts. Besides, this fund will be immediately redeemable.

For expenses that are likely to arise after five years of your retirement, you should invest in a combination of different equity mutual funds. Keeping your money in equity mutual funds will help you earn inflation proof returns, which, in turn, will help you have a great post retirement lifestyle.

Mr. Ajay Kumar Jain, M.Sc, Chairman And Managing Director
Being the Chairman And Managing Director, he focuses on holistic investment planning and wealth management and tries to make investment planning simpler for retail and HNI investors. Investor education is one of the prime things that Mr. Ajay Jain focuses on as he believes financial education is the foundation of successful investing. With over two decades of experience, Mr. Jain has made a mark in the Indian mutual fund industry due to his compassion and sheer hard work.

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