Senior Citizens Savings Scheme (SCSS) is a highly popular investment instrument among senior citizens because it provides higher returns among fixed-income assets. It is backed by the government, so there is no risk of default. Additionally, the payout is done regularly every quarter. In short, this scheme provides safety, returns, and regular income. What can be better than this? Let’s check out whether SCSS is enough to generate a steady income for seniors or if they require a different investment approach.    

SCSS In Brief

SCSS presently pays interest of 8.2 per cent as annual returns, higher than most fixed-income assets. You can invest up to Rs. 30 lakh individually. So, if your spouse also invests individually, together you can invest up to Rs. 60 Lakh. You have to invest this in a lump sum as there is no option of investing in installments.

The tenure is five years but can be extended by another three years. Any person who is above 60 can invest in SCSS. People who have taken voluntary retirement can start investing from age 55.

You can visit the nearest bank or post office to open an SCSS account.

Is It Sufficient?

The answer is no! Let us take the most favorable scenario. You and your spouse invested Rs. 30 lakh each. The rate of interest is 8.2 per cent. At this rate, you will end up getting a little over Rs. 120,000 per quarter, which works out to be Rs. 41,000 per month. It may not be sufficient for you, especially if you live in a city. Also, the income may look minuscule after a few years due to the impact of inflation.

What If The Interest Rate Increases?

SCSS offers a fixed interest rate. For example, if you have invested in SCSS at 8.2 per cent interest, then you’ll continue to get the same interest throughout its tenure, even if the interest rate increases to 10 per cent in the future. You can’t exit your investment even if the interest rate in the market has gone up. Do you want to miss the benefit of an increased interest rate?

What Is The Solution?

It is wise to invest in a diversified set of assets so that you don’t miss the benefit if the interest rate goes upward. The assets can be hybrid or balanced mutual funds, debt funds, high-grade corporate bonds, high-interest monthly income FDs, and appropriate government schemes.

Some banks offer an interest of as high as 9 per cent per annum to senior citizens. You can diversify some of your funds to such avenues to generate a high return.

Lastly, the SCSS is strictly meant for meeting your regular expenses; what about safeguarding future finances? You need to park the surplus corpus in investment avenues that have the potential to generate a better return than the prevailing inflation rate. After a few years, you may find expenses going upward due to inflation; at that time, your investments in other avenues can help you meet your regular financial needs. So, you must not rely solely on SCSS to generate steady income but diversify it to various classes.

The author is an independent financial journalist