Senior Citizens’ Saving Scheme (SCSS) vs Mutual Fund
Retirement is a time when you might not have a steady income. What helps you here is a solid retirement corpus. But once you retire and the retirement corpus is accessible, where will you park it?
You could park the same in a normal bank account, but inflation is the villain there. Inflation could diminish the purchasing power of the money if it is parked somewhere without a growth prospectus. Hence, the ideal thing to do is invest.
But investing as a senior citizen can be tough, especially since you are dealing with your retirement fund. Mutual funds and the Senior Citizens’ Saving Scheme are two possible investment options. Let us learn more about them and see which one suits you better.
Mutual funds are an investment option where the money you invest is put in a portfolio designed by a fund manager according to the theme of the fund. Different mutual funds will have different focuses. For instance, an aggressive mutual fund may invest more in equities, while a conservative fund may have more debt presence in its portfolio. Senior citizens are always advised to look for more conservative options when it comes to a mutual fund.
Senior Citizen Saving Scheme
SCSS is a savings scheme associated with a bank, similar to a savings account or a fixed deposit. But they often have more benefits.
The scheme is open only to investors who are above the age of 60. They are designed for senior citizens to invest their money with the utmost security and, at the same time, decent growth.
Structure of SCSS plans
SCSS plans have a tenure of five years. You will get the best results if you stay invested for the whole tenure, but premature withdrawal is allowed. The interest rate of SCSS is announced every month. As of 15th July 2022, the rate is 7.4%. This is higher compared to most savings accounts’ and FD schemes’.
Benefits of SCSS
SCSS provides its investors with multiple benefits to make investing in them lucrative. Below are some of its top benefits.
- The biggest benefit of investing in SCSS is tax relief. SCSS comes under section 80c of the income tax act. Through this, you are eligible for a tax deduction of up to Rs.1.5 lakhs per annum. Income for SCSS is added to the income for taxation and is taxed according to the slab.
- As said above, a senior citizen who has their income restricted is likely to look at options which are safer to invest. From that point of view, SCSS becomes an optimal option. Since the investment is not market-linked, the risk associated with SCSS is minimal, and the income comes solely from the interest the scheme gives.
- Another scheme that gives comparable returns is a fixed deposit. But one factor that differentiates them is regarding the lock-in period. While premature withdrawal is allowed in both schemes, the procedure could be easier with SCSS.
Restrictions of SCSS
- One major restriction of SCSS is age-related. The same is open only to individuals who are over the age of 60.
- The return potential may be limited compared to that of mutual funds. But the risk is lower.
- The application and account opening process of SCSS is offline.
Mutual funds vs SCSS
The choice between mutual funds and SCSS is dependent on your investment goals and risk appetite. If you have enough funds and can comfortably risk a portion of the same, you may try investing in mutual funds. But if the risk is a major concern, SCSS could suit you better.