Retirement plan: Where to invest if you have a monthly pension of Rs 30,000

Time of India

23-04-2025

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Recurring Deposits and Fixed Deposits
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Senior Citizen Savings Scheme (SCSS)
Tax-free bonds for Senior Citizens
Debt Mutual Funds
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If you are a senior citizen with a monthly retirement pension of Rs 30,000, a market expert recommends that with pension being one of the primary sources of income post retirement, one must invest according to risk tolerance and needs for cash flow.'A more conservative approach is typically recommended for senior citizens; thus investments may be skewed toward less risky assets such as recurring deposits, fixed deposits , Senior Citizen Savings Scheme, tax free bonds for senior citizens, and debt mutual funds ,' Vishal Dhawan, CEO, Plan Ahead Wealth Advisors, a wealth management firm in Mumbai.The expert shares the current interest rate offered by these investment options and the investable limit in these options.According to Dhawan, 'Recurring Deposits (RDs) and Fixed Deposits (FDs) are popular among senior citizens for their simplicity, safety, and consistent returns as they serve as a dependable source of passive income during retirement.As per the latest Union Budget, the TDS exemption limit on interest income for senior citizens has been increased to Rs 1 lakh, up from the earlier Rs 50,000, enhancing their post-tax returns, Dhawan mentions.The Senior Citizen Savings Scheme (SCSS) currently offers an attractive interest rate of 8.2% as of Q1 FY 2025-26 and it qualifies for tax deductions under Section 80C of the Income Tax Act, though the interest earned is fully taxable, the expert recommended.The scheme has a maturity period of five years, extendable by three more years upon application.The expert is of the opinion that the debt asset class is becoming increasingly attractive, with interest rates peaking and markets anticipating a potential rate cut and additionally the tax-free bonds issued in earlier years are now available for trading in the cash segment of stock exchanges like BSE and NSE.'When investing, it's advisable to choose bonds with high liquidity and competitive yield to maturity (YTM) to ensure ease of entry and exit. Currently, AAA-rated corporate bonds are offering yields of around 7.50%, making them a good option for conservative investors seeking stable returns,' Dhawan recommended.Debt Funds are mutual funds that primarily invest in fixed-income instruments. Sharing the advantage that debt mutual funds offer, Dhawan mentioned that unlike SCSS, they offer flexibility and liquidity, allowing investors to withdraw funds at any time and they also support annual portfolio rebalancing.'For instance, if the equity portion of your portfolio underperforms, you can draw from debt funds to realign your asset allocation. However, it's important to note that returns from debt funds are bond market-linked and not guaranteed, as they are influenced by interest rate fluctuations. Additionally, capital gains from debt funds are now taxed as per the investor's income tax slab, which may affect overall post-tax returns. The higher tax slabs under the new tax regime from FY25-26 would help though,' the expert further explained.According to the data by AMFI, there are around 16 sub-categories under debt mutual funds and one debt oriented hybrid mutual fund category. There are five equity oriented hybrid mutual fund categories as well which maintain a small allocation in the fixed income. Note, the multi asset allocation funds which are equity oriented hybrid funds are taxed as per the tax structure applicable for debt mutual funds.With various options available for investment in mutual funds, Dhawan advises that while selecting mutual funds, senior citizens should prioritize steady returns, liquidity, and tax efficiency.The senior citizen, besides selecting short-term debt funds and corporate bonds funds, can also consider multi-asset funds, balanced advantage funds, equity savings funds and conservative hybrid funds as options is what the expert recommends.'Balanced Advantage Funds also prove to be a good option as the fund manager shifts between equity and debt based on market conditions, offering flexibility and reduced risk, making it ideal for investors looking to beat inflation while keeping moderate risk. Conservative hybrid and equity savings funds invest primarily in debt with upto 35% in equities giving the investor appropriate exposure to growth assets along with stability,' he adds.As you near retirement or post retirement, one should lighten the equity holding and balance the exposure between debt and equity as one grows old the portfolio should tilt more towards stability.To balance the portfolio between debt and equity, Dhawan advises that, 'For senior citizens, equity allocation should be limited to 20%–30%, focused on large-caps. Around 60%–65% should be in fixed income, prioritizing government-backed schemes. With rate cuts expected, adding duration to the portfolio can be beneficial to a certain extent. The remaining can go into alternatives like gold, REITs, and InvITs upto a small extent.': Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on [e-mail] alongwith your age, risk profile, and Twitter handle