A recent report published by UN Population Fund shows that by 2050 the Indian senior citizen population will reach almost 300 million, accounting for 20% of the nation’s population.
Such drastic change in the demographics is likely to cause a severe drop in the financial situation across the nation. Subsequently, the senior citizen scheme for savings was launched that aimed to provide financial support to retirees and ensure a regular flow of funds for their daily requirements.
Along with such tailor-made schemes for senior citizens, another similar initiative is the provident fund that is maintained by individuals during their employment days. The latter are considered pre-requisites for retirees to ensure their financial independence during the post-retirement days.
Despite the fact that both of these investments work towards a similar objective, senior citizen scheme is often deemed as more beneficial than provident funds. Much of this can be attributed to its beneficial features. However, multiple other factors provide SCSS with this leverage.
Senior Citizen Savings Scheme vs PF
The Interim Budget 2019-20 witnessed a proposal to raise TDS on interest earned in post office deposits that ranged from Rs. 10,000 to Rs. 40,000. As a result, investments in both PF and SCSS, which can qualify for income tax benefits under Section 80C of Income Tax Act 1961, are likely to increase by a substantial margin.
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In spite of the growing popularity of both, Senior Citizen Savings Scheme has the upper hand over Provident Fund due to its –
Higher investment limit
- Senior Citizen Savings Scheme – Individuals can invest a maximum of Rs. 15 Lakh in their joint or single SCSS account. This deposited amount usually fetches higher returns compared to other investment options.
- Online PF – Provident fund investment maxes at Rs. 1.5 Lakh only, considerably lower than SCSS.
A higher limit of investment is especially beneficial considering that rate of interest (that determines the return) is applied on the corpus. Greater corpus assures higher returns.
Attractive rate of interest
- Senior Citizen Savings Scheme – 3rd quarter of 2019 witnessed an 8.7% rate of interest in case of senior citizen scheme for savings. This amount is payable from the date of deposit (31st March or 30th September or 31st December). Considering the direct proportional relationship between the interest rate and return, the revision will substantially help in the growth of the invested corpus.
- PF – A PF account fetches a fixed rate of interest at 8% per annum.
Moreover, retirees in need a steady flow of funds can opt for non-cumulative fixed deposit for investment. Fixed deposits are better investment avenues since it offers individuals with the provision to choose the frequency of payouts to cover various recurrent and non-recurrent expenditures.
Such Fixed Deposits from reputed financers like Bajaj Finance come with the added lucrative features of –
- Loan against FD that ensures that they are financially covered during emergencies
- The higher stability of corpus
- Multi-deposit facilities
- Flexible tenor ranging from 12 to 60 months.
In addition to this, senior citizens can calculate their total maturity amount with an online FD calculator before selecting a particular scheme. It helps them streamline their financial plan and therefore gain better understanding of their impending returns.
Options of premature closure
- Senior Citizen Savings Scheme – Taking into account the convenience of retirees, there are additional facilities of early closure from the 1st year of the scheme. It helps individuals meet with unforeseen expenses.
In case of liquidation of the investment in the first year, the deduction is on 1.5% of its deposit; this amount reduces to 1% in case of withdrawal after 2 years of investing.
- PF – In this case, the lock-in period is 15 years. Although premature withdrawals are plausible in case of online PF, the charges that it attracts are hefty.
Following up with the host of benefits offered by the Senior Citizen Savings Scheme, it is a favoured option by retirees. However, the preference for schemes varies as per the financial requirement of an individual. Those seeking higher returns against lower risks can also opt for FDs. Individuals can also withdraw and invest their EPF savings in fixed deposits to render higher returns.
Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at HighlightStory