For retirees or individuals without a steady income, what are the best investment options for regular income? Here are some of the safe and most effective options.
Nowadays when it comes to regular income, many have only one choice called SWP (Systematic Withdrawal Plan). Thanks to the propaganda of few social media experts. Many who recommend or those who are implementing SWP strategies are unaware of the risk involved (especially when your underlying asset is equity or high-risk debt instruments). I wrote few articles on this and you can refer to the same “SIP Vs SWP Mutual Funds – Which is better in India?” and “Systematic Withdrawal Plan SWP – Dangerous concept of Mutual Funds“.
In this post, I am sharing few investment options where your principal is intact and you can expect safe regular income.
Ideally looking for regular income is suitable for those who have irregular income or for those who are retirees. However, in some instances, I found that those who have regular income will desperately look for such regular income. When we have our regular income, then the target should be to accumulate than thinking of distribution now itself.
Before jumping directly into recommending options, I wish to bring clarity to the investors.
# Clarity about what you WANT
As mentioned above, those who have a regular income also look for such regular income options. This is not the best way. Instead, such regular income should be for those who are retirees or for those whose income is irregular. Hence, having clarity is the most important aspect.
# Income Tax Slab
You have to always look for post-tax returns rather than the pre-tax return. If you fall under the highest tax bracket, then the tax will eat a major portion of your return.
Hence, understand the product first, then based on post-tax returns take a call. Never consider the returns at a pre-tax level.
# You can stagger your investment
If your idea is to generate a constant stream of income and beat inflation for long-term requirements, then you can use a bucket strategy. Where you are putting your first 10-15 years requirement in safe products (a first bucket) and accordingly the future requirements splitting into a different bucket and taking the calculated risk slowly as the required term is higher.
If you can’t do that, then hire a fee-only financial planner to help you with this. For retirement calculation, I usually follow this bucket strategy in which we can take a calculated risk and also reduce the stress required for building the retirement corpus.
# Higher RISK always not HIGHER returns
High risk does not mean high returns. There is a probability of higher loss also. Hence, never heed anyone blindly. Understand the risk properly and then decide for yourself. Also, never look into the recent performance of assets or products. When you are investing in market-linked instruments, past performance is not a guarantee of future performance.
# Inflaiton RISK
Never underestimate the enemy called INFLATION. The current requirement may be sufficient for you. However, the same may not suffice for you after few years due to inflation. Hence, considering your requirement based on today’s expenses is the wrong aspect.
# Interest Rate Risk
The majority of immediate regular income products come with a tenure to the max of 10 years. Hence, post-maturity, it is not sure whether you will be able to generate the same returns or not. For example, if you opted for the SCSS scheme, then it is 5 5-year product. Once the 5 years are completed, then you have to face the interest risk. Because after 5 years, the same SCSS may not offer you the same interest. The prevailing interest rate will be applicable. Also, as the interest rate is directly linked to inflation, you have to be very cautious in choosing the products.
# Liquidity
Look for the product that offers you certain liquidity. Because we don’t know when you need money. Hence, it is always better to choose a product that offers the highest liquidity.
# Make a nomination and WILL
Wherever you invest, make sure you have nominated and if possible create a WILL also. So that your dependents or family may not be in a tussle in your absence.
Best Investment Options For Regular Income
1) Bank Fixed Deposits or Post Office Term Deposits
These are the simplest forms of products that are known to many of us. However, few risks associated with Bank or Post Office FDs are – Reinvestment risk, taxation (as per tax slab) and long-term deposits may not be possible (especially in the case of Post Office Term Deposits).
When I say Bank FDs, I am suggesting nationalized banks or big private sector banks like ICICI or HDFC. I am not suggesting any Co-Operative Banks.
You can explore the Post Office FDs also. The current interest rate is 5.5% to 6.7%, which is almost equal to the bank FD rates. You can refer to the latest interest rate at my post “Post Office Small Savings Scheme Interest Rate Oct – Dec 2024
You have an option to get the interest rates either monthly/quarterly or at maturity. If you are looking for safety, then I suggest Post Office Term Deposits over the Bank FDs.
2) Post Office Monthly Income Scheme (MIS)
- Maximum investment is Rs.9 lakh in a single account and Rs.15 lakh jointly (It is revised during the Budget 2023). Earlier it was Rs.4.5 lakh for a single account and Rs.9 lakh for joint accounts.
- Account can be opened single, jointly, Minor (above 10 years of age) or a guardian on behalf of minor.
- Any number of accounts can be opened in any post office subject to maximum investment limit by adding balance in all accounts (Rs. 4.5 Lakh).
- Single account can be converted into Joint and Vice Versa.
- Maturity period is 5 years.
- Interest can be drawn through auto credit into savings account standing at same post office,orECS./In case of MIS accounts standing at CBS Post offices, monthly interest can be credited into savings account standing at any CBS Post offices.
- Can be prematurely en-cashed after one year but before 3 years at the discount of 2% of the deposit and after 3 years at the discount of 1% of the deposit. (Discount means deduction from the deposit.).
- Interest shall be payable to the account holder on completion of a month from the date of deposit.
- If the interest payable every month is not claimed by the account holder such interest shall not earn any additional interest.
3) Senior Citizens Savings Scheme(SCSS)
To qualify for this account, individuals must be at least 60 years old on the date of opening, or they can be between 55 and 60 years old if they have retired under Superannuation, VRS, or Special VRS. Additionally, retired personnel from the Defence Services (excluding civilian employees) can open an account once they reach the age of 50.
Interest is paid out quarterly, and each person can invest up to Rs. 30 lakhs, allowing couples to invest a total of Rs. 60 lakhs. However, it’s important to note that the account has a tenure of just five years, and the interest rate may change upon renewal. This account comes with a sovereign guarantee.
The current rate of interest is 8.2%.
4) Immediate Annuity Plans of Life Insurance Companies
Life insurance providers, such as LIC, provide immediate annuity plans that cater to different needs. A notable example is LIC’s Jeevan Shanti plan or LIC Jeevan Akshay, which presents approximately 10 different options tailored to your preferences.
This product ensures GUARANTEED returns for the chosen duration, depending on the option selected. As a result, you can rest assured that interest rate fluctuations won’t pose a risk. The older you are when you enter, the greater the interest rate. Therefore, it would be advantageous to make these purchases well into your retirement years.
Such annuity products offer various pension payout options like monthly, quarterly, half-yearly, or yearly. Also, they offer various holding options like annuities up to life, annuities for certain periods, return of investment post death of investor, and joint annuities. Pension received from such products is taxable as per your tax slab and also you have to pay 1.8% GST on the pension.
5) Central or State Government Bonds through RBI Retail Direct
RBI Retail Direct is an initiative that enables retail investors to set up a gilt security account with the Reserve Bank of India, allowing them to buy government securities (Including central and state bonds) in both the primary and secondary markets without incurring any fees. This service was introduced on November 12, 2021.
Through this platform, retail investors can acquire bonds in the primary market after they are issued, using a method called non-competitive bidding. When the RBI announces government securities, banks and institutional investors—often referred to as the major players—establish the auction price. Although retail investors can now take part in this auction process, they are not permitted to place bids for the bonds. Instead, the prices are determined by the bids submitted by the larger investors.
It’s important to remember that government-issued bonds aren’t entirely risk-free. These bonds can be affected by interest rate fluctuations. If you purchase a bond today and plan to hold it until it matures, you won’t encounter this risk. However, if you decide to sell your bond in the secondary market before maturity, the price you receive will be influenced by the current interest rate environment and inflation. Generally, bonds with longer maturities tend to experience greater price volatility in response to interest rate changes. Therefore, exercise caution when investing in these types of bonds.
Choosing this option is best suitable for those who are young.
Also, liquidity in the current scenario is not much in the Indian market. Hence, there is a risk of liquidity if you want to sell it before the maturity. Usually, interest will be payable once in 6 months. Interest (coupon) is taxable income for you as per your tax slab.
Conclusion – You notice that there is no tax advantage on the regular income you receive from all these products. Also, few products are illiquid in nature (annuity or bonds). Hence, choose the product which is best suitable for you. Ideally, young investors can opt for bonds and old investors can opt for other traditional products. Also, note that don’t think state and central governments are the same in terms of risk. State government bonds pose a higher risk than the central government bonds. Hence, don’t just look into returns but understand the risks also.
