Among various important factors to consider while investing are the objective of investing, age and risk profile of the investor, and investment horizon. Senior citizens require investment options that help them live their retirement life with a strong financial back. They can not take any undue risk with their funds. Therefore, they look for investment avenues that can offer complete capital security and steady income.
Over the years, with a constant decline in interest rates, senior citizens may search for alternative investments to fixed deposits. They need investments that can meet their needs on both ends – complete protection to capital and stable returns. Especially when they require a supplement to their income after retirement. Also, they prefer an investment with a three to five years maturity term instead of a ten year or more. The reason is simple – the immediate need for medical use or unpredictability of life. One of the safe havens with better returns than fixed deposits for senior citizens is bonds. Other options that can serve senior citizens’ investment purposes are T-bills.
Best Bonds for senior citizens
Find the following features and primary benefits of the best bonds for senior citizens.
RBI bonds, also termed Government of India Savings Bonds, are amongst the safest bonds in India. This is an attractive investment when compared with other fixed-income investments.
- Safe Investment: RBI bonds are issued by the Indian government itself. Therefore, these bonds are 100% risk-free investments. Risk-averse investors, like senior citizens, are assured about capital protection and steady interest income.
- High-Interest Rate: Amongst several fixed-income instruments, RBI bonds offer a higher interest rate. For the recent issue – RBI Floating Rate Savings Bonds, 2020 (Taxable), the interest rate has been fixed at 7.15%. The interest rate of these bonds is linked to the National Savings Certificate (NSC). The bond interest rate is fixed 0.35% above the prevailing NSC rate.
- Periodic Interest Payouts: RBI bonds offer a periodic income with an attractive interest rate. Investors receive interest every six months on the basis of half-yearly interest payments. The principal amount stays invested safely for seven years (RBI Bond’s maturity period), and interest is credited to the investor every six months. Conservative investors like senior citizens, looking for steady returns, can park their surplus beyond emergency needs in the RBI savings bonds.
- Premature withdrawal: Senior citizens can withdraw their funds prematurely. Senior citizens who have attained 60 – 70 years of age are allowed to withdraw their funds after completing 6 years, those who are aged 70 – 80 years can withdraw after 5 years, and those who are 80+ years old can withdraw the funds after completing 4 years. Thus, RBI bond investing is a flexible option for senior citizens.
- Easy Investment: RBI bonds are easy investments as these are issued electronically and held in the Bond Ledger Account safely. The interest is directly credited to the investor’s bank account. The bondholder can make a nomination also.
Treasury Bills (T-bills)
The money market instrument T-bills are the short-term debt instruments. T-bills are offered at a discount to their face value. These bonds can be a source of emergency funds.
- Issuer: The issuer of T-bills is the Government of India. Therefore, these are considered one of the popular safe investments.
- Maturity Period: These bonds are issued with a maturity period of 91 days/182 days/364 days. Senior citizens can access their funds easily after the desired shortest period. The settlement period is T+1. Funds and securities are settled within one day after the bond matures.
- Returns: These are zero-coupon securities. It means they do not pay interest. Instead, the government issues them at a discount and they are redeemable at face value.
Let us bring clarity with an example. For example, you have invested in a T-bill with a maturity period of 182 days. The face value of a bond is Rs.1000 and is issued at, say, Rs. 888, i.e., a discount of Rs.112. The investor will receive the face value of Rs.1000 at redemption. The return on T-bills is the difference between the face/redemption value (Rs.1000) and the discounted issue price (Rs. 888).
Short-term bonds can be issued by a government or corporation to raise funds to finance specific projects with the promise to repay the principal amount at the predetermined coupon rate at maturity.
- Short-term maturity period: Short-term bonds are issued with a maturity period of 1-4 years. Senior citizens who want quick access to their money can consider short-term bonds. The issuer will repay your principal at the maturity date.
- Regular Interest Payouts: The bondholder receives the interest at the set intervals, generally on an annual basis.
- More stable than long-term bonds: Short-term bonds do not fluctuate too much in value. There is a lower degree of interest rate risk as compared to longer-term bonds. For example, if the interest rates change by 0.5%, short-term bonds will see a lower degree of change to their price – the bond price increases when market interest rates decrease. Interest rate risk is not a concern if the investor holds the bonds until maturity. As the investment horizon is not so long, senior citizens can hold the bond till maturity easily.
Generally, all bonds are safe. Senior citizens can consider tax-free bonds also, issued by the government if it is only about capital protection. These bonds are infrastructure bonds and issued with a 10 years maturity term. In urgent financial needs, they can collateralize their bonds to avail a loan from a financial institution. However, an investor has to necessarily keep the money invested in the bonds until the maturity date for a tax benefit.
Thus, consider your investment preferences and positively choose any of these safe bonds.