Fintech and tax professionals offer a clear guide to assist your father in planning alternative investments for his retirement. Here are their recommendations
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By 2050, the demographic of Indian senior citizens is set to hit the 340 million mark. When it comes to financial support, many Indian seniors have traditionally relied on family.
However, changing social dynamics present unique financial challenges for those in retirement. Currently, only about 23 per cent of the elderly have access to any form of pension. Also, the lack of familiarity with digital banking and modern financial instruments can leave them vulnerable to financial mismanagement and fraud.
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To build resilience post-retirement, Indian senior citizens need accessible financial education and tailored advice. On the occasion of Father’s Day, we roped in fintech entrepreneur Bhuvan Rustagi, the co-founder and COO of Per Annum; and tax expert Manikandan S from Cleartax who take us through four alternative investment options that can help to secure your father's future.
What are the most suitable alternative investment options for retirees?
Rustagi: As our parents or in-laws reach their 60s, navigating the financial landscape can become challenging. In these circumstances, alternative investment options offer the advantage of providing a stable and secure future for them and their families. These investment instruments are an excellent way to diversify portfolios with options like P2P lending, non-convertible debentures (NCDs), government schemes and real estate investment trusts (REITs).
This diversification helps senior citizens manage their finances smoothly and build resilience for the future. Alternative investments not only help diversify their portfolios but also offer inflation-hedging capabilities against market volatility, thereby reducing overall risk.
How can alternative investments be balanced with traditional assets in a retirement portfolio?
Rustagi: A major concern for retirees is their monthly income. Not having a constant source of income compels each individual to plan well for their retirement.
1. One now starts exploring investment platforms that can generate enough income.
2. Here traditional investment mediums like FDs and equity instruments are available as well as Alternative Investment Funds like P2P investments.
3. These traditional investments provide 6-7 per cent p.a. Whereas P2P investments range from 11-12 per cent returns.
4. Ideally based on monthly expenditure and requirements one may select the way they want to allocate their funds.
5. Say, if he wants a higher income, he may decide to invest more in P2P as it provides higher returns and can give you stable returns. For example, it may be 60 per cent for P2P and 40 per cent for FD.
6. Options of retaining the interest amount for further compounding can also be a great option, to raise the overall return. Say, you can take 75 per cent of the interest out and keep the rest quarter for further compounding.
How to optimise these investments to maximise benefits and minimise risks?
Manikandan: To minimise your taxes choose investment options like PPF and SSY and enjoy an Exempt-Exempt-Exempt (EEE) status, meaning contributions, interest earned and maturity amount are tax-free.
Regarding mutual funds, gains from listed equity funds held for more than one year are taxed at 10 per cent (on the gained amount exceeding ₹1 lakh in a financial year). Short-term gains are taxed at 15 per cent. However, debt funds gains are added to your income and taxed as per your slab rate irrespective of the holding period.
The applicable tax rate on ULIP is the same as mutual funds. Tax applicability would depend If the premium amount in any previous year exceeds Rs.2.5 lakh, if not then your entire return would be tax-free.
When it comes to FD, earned interest will be added to your income and applicable tax rate would be according to your tax bracket. But if yearly earned interest will be more than Rs.40000 then the Bank will also deduct 10 per cent TDS.
Tax planning: An efficient tax planning can minimise taxes and enhance your investment returns. Prioritise tax-free investments like PPF and SSY. They not only provide assured returns but also come with tax benefits. Invest in instruments eligible under Section 80C of the Income Tax Act, like ULIP and Tax-Saver FD. You can claim deductions up to ₹1.5 lakh per year. Holding investments for the long term, especially equity mutual funds, can reduce your tax liability. And don't forget to Keep detailed records of your investments and expenses to ensure you claim all eligible tax deductions.
Also Read: A beginner's guide to saving and investing in your 20s
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