The number of senior citizens, roughly 133 million in India today, is expected to touch about 180 million by 2026 according to a report by the United Nation Population Fund and ‘HelpAge India’. One key concern of this demographic is their financial profile.
A survey by the Agewell Foundation reveals that 65% of India’s geriatric population either face a financial crisis or depend on others. If you are nearing retirement or planning retirement finances for your parents, then it’s time to look for risk-free investments to achieve core objectives like good healthcare, financial security and funds to maintain the same lifestyle as before retirement.
Fixed deposits are the most sought-after investment instruments as they offer security when you need it most. Here’s what makes FDs a preferred investment for senior citizens.
- Stability: The lack of a regular income source is often what creates fear of retirement. A non-cumulative FD offers a monthly payout that feels like a salary. It can be used by senior citizens to meet daily living expenses.
- Guaranteed and fixed returns: The interest rate and maturity amount that you get from your FD is fixed, and cannot be changed. Moreover, you are guaranteed payment of the amount by a pre-specified date. These inherent characteristics of an FD enable protection of your capital, a feature that senior citizens regard essential to preserve their retirement corpus.
- Easy to open and operate online: Nowadays FDs come with an associated bonus of convenience. Senior citizens need no longer travel all the way to a finance company’s branch to open, renew, or withdraw their FD. With the click of a few buttons, they can apply for the FD online and manage their account via the customer portal too.
Financial companies offer door-step document pickup to further help ease the process, so that you don’t even need to leave your home. Once you submit the application form, deposit the amount via cheque or net banking and submit ID and address proof, you can view all your FD details online.
- It does not require constant monitoring: Unlike investments in the stock market which require you to check on their progress based on market volatility, FDs need very little supervising. Since they offer fixed returns that are not linked to the market, they keep your investment intact and grow your earnings by the promised rate.
The longer the tenor of your FDs, the more their value appreciate though the power of compounding. All you need to do is be aware of the maturity date. Some financial institutions may reinvest your FD after waiting for a small period of time after your tenor ends. Or, they may mail you a cheque with the total amount. It is best to keep a reminder of the maturity date so you can decide if you want to reinvest or withdraw your principal and accrued earnings.
- It offers income tax benefits: You can save tax on both bank and company FDs. Bank FD can help you save tax when you choose a lock-in tenor of 5 years. This allows you to claim deduction of up to Rs.1.5 lakh from your gross total income under Section 80C of the Income Tax Act.
For a company FD issued by an NBFC, any earnings above Rs.5000 are subject to tax as per Section 194A of the Income Tax Act. If you provide the 15G/15H certificate which shows that your income is below the taxable limit, then you will not be charged any tax on your FD earnings from company FDs either.
- It offers liquidity and can be a loan security: The process to withdraw your FD prematurely, especially in company FDs is quite short, and may be completed quickly when you need funds for an emergency.
There is a small withdrawal penalty and you may stand to lose out on part of your interest earnings; however, it does give you the option to get the finances you need. Conversely, you can also take a loan against your FD to fulfil your monetary requirements. For example, Bajaj Finance offers a Loan against FD for up to 75% of the value of your fixed deposit.
These six reasons make an FD investment essential for senior citizens. Choose wisely between a cumulative and non-cumulative FD or start both to get double the advantage.