One of the best ways to fund your expenses post-retirement, without using up your retirement savings, is to look for investment options offering steady income. The interest payouts from your investments can be used to fund your regular expenses. This can help you plan your finances better.
As the fear of outliving retirement savings becomes all the more common, several investment options have started offering a monthly income for you to fund regular expenses.
Here are the best investment options to help you get a regular income:
1. Corporate Deposit:
Several corporations provide you with the flexibility to invest in Fixed Deposit with competitive FD interest rates. Usually these are offered by Non-Banking Financing Companies (NBFCs) and housing finance companies. Such companies provide interest on a quarterly or half-yearly basis, and you can also choose to get returns for any four months in a year. They come with additional interest rates falling between 0.25% and 0.5% for senior citizens.
It is important to remember that there could be a slight risk of delay in payment or default from such companies. That is why you should try to ensure that your chosen company has high credibility and consistently stable ratings of AAA from CRISIL or ICRA. In order to diversify the risk, you can distribute your money into deposits with multiple companies, which will also help ensure you receive income for every month of the year.
2. Post Office Monthly Income Scheme:
For those investors with a zero tolerance for risk and hopes of earning continuous income, the Post Office Monthly Income Scheme is one of the best available options. The interest is paid at 7.3% per annum . Although the maturity period for this scheme is 5 years, you can withdraw earlier if you complete one year of deposit. Withdrawing between 1 year to 3 years of deposit results in a 2% deduction. If you withdraw between 3 years to 5 years, you will incur a 1% deduction from the total amount deposited.
3. Senior Citizen Savings Scheme:
The post offices in India offer a special investment scheme for people aged 60 or above, which is called a senior citizen savings scheme. It is another type of risk-free instrument that can offer significant returns. An important clause is that if you retire under the Voluntary Retirement Scheme, or on super annuation, you are allowed to be between the 55 years to 60-year age bracket. However, remember that you have to open your account within the first month of receiving the retirement benefit, and the amount you deposit should not be greater than the retirement benefit amount received. An interest rate of 8.6% calculated annually can be availed under this scheme by those who invested after the 1st of April, 2016.
4. Long-term Government Bond
As another low-risk option with good returns, a long-term government bond pays interest once or twice a year. You can club it with the other investments to earn income all year round. Since they are traded on the secondary market, you can sell them whenever you wish. However, the catch is that you have to lock-in your funds for a considerably long tenor which can go up to 15 or 20 years.
5. Equity Share Dividend:
This option allows for investment gains over the long term along with the promise of a regular income, but the risk factor is very high. You are required to build a diverse portfolio including multiple stocks so as to facilitate a high dividend payout ratio. Since you receive dividends on profits and not on capital, there is a greater-than-average possibility of companies not paying regular dividends.
Indian insurance companies are known to offer annuity plans that offer low risk and a regular income. You can use this as a retirement strategy by making a lump sum investment to earn income at fixed intervals. The primary method of classifying annuity plans is based on the duration of payment period, and is divided into Deferred annuity and Immediate annuity. Deferred annuity provides money after a fixed tenor period set by you, while Immediate annuity involves receiving regular income as soon as you make the lump sum payment. Keep in mind, however, that there are various charges involved in annuity investment, which include commission and surrender fees. It is also taxable and does not yield any tax benefits.
7. Mutual Fund Monthly Income Plan:
This plan is ideal for beating inflation, provided you are ready to take a moderate amount of risk. The ratio is usually 20% to 30% investment in equity securities, and 80% to 70% in debt instruments like certificates of deposit. A good tenor for this plan is between 2 to 3 years, and you can receive monthly income by selecting a dividend-payout option. However, the equity component makes it difficult to acquire regular dividends due to the fact that dividends are only paid on profits, and not the invested capital.
Due to a good balance of low risk and stable returns, most investors tend to invest in Fixed Deposit for higher stability and better returns.
Plan your finances with care and invest in a FD (Fixed Deposit) by Bajaj Finance, where you can get high interest rates, flexible tenors and assured returns.
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