The government-backed Senior Citizens Savings Scheme (SCSS) helps people aged 60 and above to secure a stable cash flow after retirement when income from salary or other avenues stops or declines. SCSS provides competitive interest rates quarterly, which are fixed and guaranteed. However, potential investors should be aware of certain inherent drawbacks in the scheme.

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Here are six drawbacks of the SCSS scheme:

Age Limit

Only citizens aged 60 and above are allowed to create an SCSS account. This age requirement implies that an individual who wishes to retire early cannot take advantage of the scheme.

Illiquid

The liquidity issue is a significant concern for retirees needing access to their funds for unexpected circumstances, like medical problems or shifting financial responsibilities. The plan’s strict five-year lock-in restricts partial withdrawals, although it allows premature exits.

Investment Limit

Although SCSS has a maximum investment limit of Rs 30 lakh, this may be a limiting factor for those who can invest more for additional income. Nevertheless, individuals are allowed to open multiple SCSS accounts. However, managing several accounts can be inconvenient for investors.

Tax

The SCSS’s interest income is taxable as per the tax slabs. However, retirement savings plans like bonds and the Public Provident Fund (PPF) offer tax exemptions. This tax burden may require complex tax planning and compliance for older individuals.

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No Compound Interest

Compounding interest is crucial for long-term wealth creation. However, the SCSS’s interest rate is computed only on the principal amount, not on accrued interest, reducing its overall return potential compared to compound interest alternatives. Compounded and simple interest can yield different returns over long periods. The SCSS’s straightforward interest structure disadvantages individuals who want to maximise profits by reinvesting the interest component.

Accessibility

Private banks and investment platforms cannot offer the SCSS, which is only accessible through post offices and designated government-run banks. Its limited access can be an issue for some investors who may want to avoid travelling long distances to subscribe to the scheme or via the online route.

Non Transferable

The scheme prevents individual from transferring their account to another person, which could be an issue if the transfer is necessary due to changes in financial situation, or emergencies.