LIFE BEYOND FIXED DEPOSITS

A PRIMER FOR SENIOR CITIZENS

Ashwani Gupta
Gupta Institute of Financial Training LLP
Ahmedabad
Updated July 25, 2020
Version 2.0
 OUTLINE OF THE DISCUSSION

• Basics

• Government Schemes

• Do I need Debt Mutual Funds

• Negative List

• Documentation
 BANK FD

• Liquidity

• Convenience

• TDS is Tedious

• Net Negative Real Return

• Deposit insurance  5L Only

 BASICS

• What is my tax rate

• Filling the Gap
Monthly Expenses
– Less Rental Income
– Less Pension
– Less Any other assured cash flow (NPS, Annuity etc)
= Gap to be filled by interest income
 OUR PHILOSOPHY
• KISS
– Keep it Simple Sir
• DIY
– Do it your self
• A4 Rule
– Avoid multiple small investments
– All investment Details should fit on one page
• KAPT
– Keep accounts and Pay taxes
 GOVERNMENT SCHEMES
SAFER THAN FIXED DEPOSITS

• PPF
• LIC PMVVY
• Senior Citizen Scheme
• POMIS
• RBI Bonds
• NSC and KVP
• Tax Free Bonds
 PPF

• Maximum contribution 1.5L PA

• Interest rate variable (currently 7.1% PA)
• Benefit under 80C
• Interest credit to account
• Maturity 15 years. Extendable
• Interest and Maturity Amount are Tax Exempt
 LIC PMVVY (Table 856)
• Maximum limit 15L per senior citizen.
• Minimum Age 60
• Duration 10 years
• Available till March 31, 2023. Only from LIC
• Maximum Pension 1.11L per annum
• Pension / Interest is Taxable
 PMVVY (2)
PREMIUM Pension Yield

14,49,086 1,11,00 PA 7.66%

14,76,064 55,000 HY 7.52%
14,89,933 27,750 QRT 7.45%
15,00,000 9,250 PM 7.40%
 SCS 2004
• Maximum Investment 15L
• Interest Rate Variable (Current 7.4%)
• Quarterly Interest pay-out
• Only Spouse can be joint Holder
• Tenure 5+3 years
• Interest is Taxable
• 15L  27,750 QRTLY
 RBI BONDS

• Demat only (BLA)

• Interest Rate 7.15% (NSC + 0.35%)

• Non cumulative Intt Paid Jan and Jul

• Tenure 7 years

• No Limit on investment

• Taxable
 TAX FREE BONDS

• GRAB THEM WHEN AVAILABLE

• Issued mostly by PSU or other Central

Government Authorities

• Tenure 5-10 years

• Demat compulsory
 NSC
• No limit on investment amount
• Interest rate variable but lock in
• Current 6.80% compounded annually
• Rs 1,000  1,389
• Tenure 5 years
• Pass Book Mode
• Benefit u/s 80C
• Interest is Taxable
 KVP

• No limit on investment

• Tenure 10 years 4 months

• 1000  Rs 2000 (double)

• Pass Book Mode

• Implied rate 6.90 % communed annually

 POMIS

• Maximum 4.5L for individual and 9L for joint

• Interest rate variable (current 6.60 %)
• No tax benefits
• PO SB account needed for Interest Credit
• 9L  4,950 PM
• Can be combined with MF SIP
 SUKANYA SAMRIDDHI YOJANA
• For Girl Child up to age 10 years
• Maximum Deposit 1.5L PA
• Interest rate Variable (current 7.60 % PA)
• Interest credited to account
• Maturity at age 21
• 80C Benefit.
• Interest and Maturity amount tax exempt
• Ideal for Grand parents to Gift Grand Daughter
 DO I NEED MF
• Convert Interest Income to Capital Gains.
– FIFO andIndexation for LTCG
– FIFO based STCG Capital Gains

• But it carries market risk.

• Suitable for those in 30% tax bracket
• Yes, if
– Income above 10L PA
– Net worth above 1 cr
– Time horizon more than3 years
 FUND SELECTION
• Minimum AUM 20,000 cr
• Match Average Maturity with your time Horizon
• Avoid Exit Load
• Direct Plan only
• Preference for Short Term Funds
– Minimal difference between ST and LT yields.
– In some cases ST yields may be higher
– Less risk in ST liquid
– Lower Expenses Ratio
 BHARAT BOND PSU ETF

• Listed on Exchange
• Demat account Required
• Low risk (AAA PSU Portfolio)
• Indexation Benefits on Maturity
• Yield approx. 5.75% post tax
• Daily Price Movement may not suit all
STP AND SWP TAX EFFICIENCY

Invest 500000 500000 500000

Growth 7.50% 7.50% 7.50%

Amount 37,500 37,500 37,500

Tax Rate 5% 20% 30%

Tax 1875 7500 11250

Available 35,625 30,000 26,250

 FD v SWP and STP
500000 500000 500000
NAV 10 10 10
Units 50000 50000 50000
Growth 7.00% 7.00% 7.00%
NAV 10.7 10.7 10.7
Withdraw 37500 37500 37500
Units 3504.67 3504.67 3504.67
Cost 35047 35047 35047
Gain 2453 2453 2453
Tax Rate 5% 20% 30%
Tax 123 491 736
Available 37377 37009 36764
Extra 1752 7009 10514
 WHAT TO AVOID
• NBFC Debentures
• Unsecured Fixed Deposits
• Investment Trusts
• Other complex products
• MF FMP
• Cooperative Bank FD
 DOCUMENTATION
• Nominee
• Joint Holding
• NEFT based interest credits
• Xerox of Forms (Sign Difference with Age)
• Don’t change Mobile Number
• Dedicated email ID
• Synchronise Names on all ID Proof
• Share details with Family Members
 FUTURE ACTION
• Review Current Investments
• Make a Plan
• Action the Plan
• Avoid advisors interested in commission driven
products
• 1% advisor commission 15% of earning
 DISCLAIMER
• For Education Purposes only
• Information subject to periodic change. Please
check latest rates and terms before investing
• Please do due diligence before investment
• Copy and printing prohibited
• Forward in PDF only with due acknowledgment
 Contact
• info@giftacademy.co.in
• +91-94262-52093 (whatsapp only)