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Senior Citizen Savings Scheme (SCSS)

Senior Citizen Savings Scheme(SCSS) is a scheme run by the Government of India keeping in mind the requirement of Senior Citizens for regular income from safe investment. Eligibility: Any individual, who has attained the age of 60 years or above on the date of opening of the account can open an account under the Senior Citizen Savings Scheme(SCSS). An individual, who has attained the age 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme(VRS) or a Special Voluntary Retirement Scheme can open an account provided it is done within one month from the date of retirement.\ There is no age limit for retired personnel of Defence services provided they fulfill other specified conditions. The account can be held singly or jointly with one's spouse. Multiple accounts can be held subject to the overall investment limit. Non-residents and HUFs are not eligible to open an account under this scheme. Investment Limits:  The minimum amount of deposit required under this Scheme is INR 1,000 and the maximum amount that can be held under this account is INR 15,00,000 (total across multiple accounts). Time Period: This account has a maturity of 5 years. It can be then extended for periods of 3 year each. Withdrawal: If the account is closed after one year but before two years from the date of opening of the years, an amount equal to 1.5% of the deposit will be deducted. If it is closed after two years, then an amount equal to 1% of the deposit will be deducted and the balance paid to the investor. An extended account can be closed after a period of one year from the date of extension. No deduction will be made if the account is closed on the death of the depositor. Tax Treatment: Amount deposited under this scheme is deductible under Section 80C of the Income Tax Act. However, the interest earned is taxable. TDS is deducted at source on interest if the interest amount is more than Rs.10,000 p.a. Others: The interest earned on the account can be transferred to another savings account every quarter. All transactions (account opening date, deposits, interest paid, nominations etc.) with respect to the account are maintained in the passbook provided to each depositor. FinPlan Café Note: Positives: SCSS is the safest Investment Avenue for Senior Citizens looking for regular income. Negatives: The interest earned on the deposit is taxable. The maximum amount a person can deposit is Rs. 15,00,000 translating into a monthly income of Rs. 11,250(pre tax) which may not be sufficient. Conclusion: When planning for retirement, funds must first be allocated towards SCSS and then towards other avenues like PO Monthly Income Scheme, Mutual Fund Monthly Income Plans(MIPs), etc. Having the quarterly interest transferred to a regular savings accounts enables you to earn interest on the unutilised amount in the savings account.
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Mistakes you must avoid while buying a ULIP

ULIP stands for Unit Linked Insurance Policies combining the investment and insurance needs of a person. ULIPs have become extremely popular among investors as a great tool for tax saving and wealth creation.

A ULIP provides a reduction in taxes, a life cover, and an appreciation in the invested amount.

People who want to gain substantially from ULIPs should invest in it for a minimum of 10 years. ULIPs provide the best results only when one is investing in it from a long-term benefit. Also, one cannot rely only on a ULIP to fulfil their insurance needs. It is important that you avoid the following mistakes while buying a ULIP.

Do not invest only for the tax-benefits

ULIPs are eligible for tax benefit under section 80C of the Income-tax Act. It is considered one of the products for INR 150,000 tax deduction. Many people buy ULIPS only because it is a section 80C option and helps in reducing taxes.

If you want the tax-benefit, you cannot withdraw the invested amount for a period of 5 years from a ULIP. Where you withdraw money before 5 years, you have to pay taxes on the money received. Thus, you must look at the long-term benefit before making a decision of investing in ULIPs.

Do not invest only for a life cover or insurance

A general ULIP with a premium of 1 lakh INR per annum will provide you with the insurance cover of INR 10 lakhs. This ULIP is for a period of 10 years. Thus, the sum assured is equal to the amount that you would pay a premium per annum for the ULIP.

Before rushing into buying a ULIP for the purpose of insurance, just think if the sum assured of INR 10 Lakhs is enough for your family? Will it actually serve the purpose of insurance? You can refer our Article – How much cover you need in term insurance. This shall help you understand what amount of cover you actually need and how pure term insurance is the best product for your insurance needs. Do not substitute the same with ULIPs.

Also, if you stop paying the premium amount, you lose on your insurance benefits. 

Do not invest only for equity growth

ULIP is also a fund which is eventually invested in various financial products.  ULIP gives you the option to select the kind of fund (i.e. pool of investment products) that you desire to invest into. Thus, you must decide based on your risk appetite, your understanding of the fund or your financial advisor's advice. Refer to Article - different kinds of ULIP funds_

Your investment decisions must be based on your defined goals and should never be a random allocation.

Do not stop paying premium after the first premium or anytime later.

Where you stop making the premium payments for your ULIPs, the following things may happen:

  • You will not be able to withdraw the amount until the lock-in period of 5 years.
  • If you stop paying your premium after the first year and withdraw the amount after the lock-in period, you do not get paid on the basis of the Net Asset Value of the year in which you are getting paid. Rather the money you get is based on the Net Asset Value of the year in which you stopped paying the premium.
  • The amount that you would receive after completion of 5 years would be after deducting various charges like fund management, annual charges, and surrender charges.
  • The insurance cover would be stopped immediately and there would be no life cover.
  • The death benefit will be limited to the NAV (Value) of the Fund/Money invested.

Do not overlook the charges

There are many charges in a ULIP like premium allocation charges, fund management charges, mortality charges etc. These can amount to easily 4%-5% of the premium amount invested in a ULIP.

After reading this article, you may feel that ULIPS are not a good investment option. It is not so. However, there are many things that one must look at before making an investment decision which includes things you must do and things you must not do.

 

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Choice of Investment Products

Have you been confused when deciding where to invest your hard earned savings?

You are not alone because there are a sea of products available for you to put your savings in. We make an attempt to give you a snapshot of products below:

I. EQUITIES:

(1) Direct Equities: Investment in shares of companies through the stock exchange. This includes both the cash and the Futures & Options segments.

(2) Mutual Funds: Investment in over 1,500 Mutual funds which include the following categories; Large cap funds, Mid-cap funds, Sector Funds, Index Funds, Hybrid Funds(Debt plus Equity) and ETFs.

NEVER PUT ALL YOUR EGGS IN A SINGLE BASKET!

II A. DEBT INSTRUMENTS

(1) PO Monthly Income Scheme(MIS): A deposit offered by the Post Offices(PO) which pays a monthly interest. Suited for retired individuals.

(2) PO Recurring Deposit(RD): Another scheme from the Post Office which enables small periodic savings with as low as Rs. 10 a month.

(3) Kisan Vikas Patra(KVP): Popular fixed income bonds which repay the principal and interest on maturity.

(4) National Savings Certificate(NSC): Popular fixed income bonds which repay the principal and interest on maturity.

(5) Bank Fixed Deposits: The most popular investment avenue in India. The deposits could bear a Fixed Rate or a Floating Rate of interest. Banks also offer Recurring Deposits.

(6) Mutual Funds: Debt Mutual Funds score over deposits because of they are more tax efficient and more liquid. These include Income Funds, Monthly Income Plans and Liquid Funds.

(7) Corporate Deposits: Apart from banks an investor can invest in deposits of Corporates, NBFCs and other Financial institutions. These generally offer a higher rate of interest compared to bank deposits and have a higher risk.

II B. Retirement Saving Avenues:

(1) Senior Citizen Savings Scheme(SCSS): A government of India Scheme specially for retired individuals.

(2) Public Provident Fund(PPF): The most popular tax saving scheme falling under the 'EEE' category of investments.

(3) Employees Provident Fund(EPF): Mandatory contributions to the EPF required by law for all salaried employees result in this fund forming a part of every individuals' portfolio.

(4) New Pension Fund(NPS): Another 'EEE' category product, which helps one accumulate a corpus for his retirement days.

(5) Annuities: The corpus accumulated for one's retirement can be invested to earn monthly annuities to meet post retirement expenses.

(6) Reverse Mortgage: A product recently introduced in India, it offers retired individuals monthly income against the security/mortgage of their house.

II C. Government Bonds:

There are a number of securities issued by the Government of India available for investment based on their requirement:

(1) RBI Bonds

(2) State Government Bonds

(3) NHAI/REC Bonds u/s 54EC for Capital Gains

(4) NABARD Bonds u/s 80C

(5) IIFCL Tax Free Bonds

(6) 8% taxable Savings Bonds

III. STRUCTURED PRODUCTS:

(1) Capital Protection with market participation Products: Generally restricted to the High Networth Individuals(HNIs), structured products come in different shapes and sizes.

(2) Private Equity(PE) Funds: For the niche section of investors, these investments fall in the high risk high return category.

IV. REAL ESTATE:

(1) Direct Investment: This involves buying physical residential and commercial properties including land.

(2) Real Estate Funds: Just like Mutual Funds, real estate funds pool in the investors money and invest in real estate properties. This scores over direct investment because of lower transaction costs and professional management of the fund.

(3) Real Estate Investment Trusts(REITs): A security that sells like a stock on the stock exchange and invests in real estate directly, either through properties or mortgages. Such securities are not yet available in India.

V. COMMODITIES:

(1) Gold ETFs: The most popular and easiest route to gain exposure to investments in gold.

(2) Direct Investments: Just like the direct equity route, one can get exposure to commodities both in the cash or Futures & Options market.

VI. FOREX:

The largest market in the world in terms of volume, this is an investment product which is not yet popular among the retail investors in India.

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