Over the last five years, the central government has steered the economy into a low interest rate regime. This has led yields to fall across all fixed income investments. Senior citizens who depend on fixed income from their hard earned savings are finding it increasingly difficult to get adequate returns to meet their living expenses. To add to that, the economy has progressively under-performed over the last six years, finally culminating in the Covid lockdown induced negative growth situation that we are in today. Keeping in view the risk to return balance, the following could be looked at by senior citizens:
1. Lowest risk investments are fixed deposits of banks and small savings schemes of the government. Senior citizens get a higher rate of interest in most of these schemes including Post office monthly income schemes. It is possible to get a return of 5% to 7% p.a. in such schemes with a judicious mix.
2. Higher yielding instruments are company fixed deposits. However, these involve higher risk. It is important to invest only in AAA+ rated companies. Here we might achieve yields of 7% to 8.5% p.a.
3. Of course for people who do not require immediate income on a certain amount of their savings, they can continue their PPF accounts, which are currently yielding 7% p.a. +
4. If there is higher risk-taking appetite, mutual funds investing in equities may give higher returns over the short term. The stock markets in India seem to be detached from the fundamentals of the economy mainly due to low cost FII money coming into India and increasing liquidity. However, this requires monitoring on a regular basis and while earnings may be more, when the market reverses losses may also be more.
While inflation had shown a downward trend up to last year, we are once again noticing an upward trend in inflation, especially in food items. If this continues and demand for funds rises over the next two years, interest rates will be expected to rise once again.
Subir Das
The author is a chartered accountant and a company director.
