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Serious about retirement planning? Avoid life insurance

Senior citizens looking for ways to save tax before the end of the financial year are advised to avoid any life insurance product. Life insurance is vital only in your accumulation phase, you are in the accumulation phase when you are the main earner, and you have responsibilities towards the dependent members of your family. However, when you are retired and a senior citizen, your duties are automatically transferred to dependents.

Your priorities during this stage of life will be capital security, regular income generation, and managing expenses related to healthcare and retirement. Thus, while searching for schemes to save tax, always keep these top priorities in mind to properly meet your liquidity requirements. You can go with plans either having a short lock-in period or with one that offers decent returns with regular returns.

Equity Linked Savings Scheme (ELSS)

If we take a look at tax-saving plans that are available for senior citizens, Equity Linked Savings Scheme (ELSS) also known as tax-saving mutual funds shines brighter with its least lock-in period of 3 years. ELSS also has the potential to offer good market-linked returns over the period of 3 years, thus you can choose an ELSS fund carefully after considering several quantitative and qualitative factors.

Compared to other fixed income tax-saving plans like National Savings Certificate (NSC), tax-saver bank FD, Public Provident Fund, etc, ELSS has the potential to yield better market-linked returns in 3 years. However, a retiree should avoid the Systematic Investment Plan (SIP) way to invest in ELSS, because each of your SIP installments will be subject to a lock-in period of three years. Instead, consider making a lump sum investment in ELSS.

When the lock-in period in ELSS will be complete you can, the amount can be withdrawn via the Systematic Withdrawal Plan (SWP). This is a facility offered by mutual fund houses, which generates a cash inflow stream to meet retirement expenses.

Apart from ELSS, having investment in 5-year Tax-saver Bank FD as well as in Senior Citizen Savings Scheme (SCSS) will also be a great option for stability and diversification purposes. Tax saving FDs cannot be prematurely encashed before completion of at least 5 years from the date of receipt. But this lock-in is good in a way to keep the funds safe and stable.

In Tax Saver FD you can invest a minimum amount of ₹ 100 or its multiples, with a maximum limit of ₹ 1.50 lakh in a financial year. Noticeable thing is that the interest rate varies among banks.

A retiree can consider the Quarterly Interest Payout Plan or Monthly Interest Payout Plan as per liquidity needs and fund retirement expenses. The deposit can be made in one name or jointly, but the noticeable thing is that, if it is held in a joint holding, the section 80C deduction benefit is available only to the first holder who has a PAN (Permanent Account Number).

Senior Citizen Savings Scheme (SCSS)

Similarly, the Senior Citizen Savings Scheme (SCSS) is also a good tax-saving option for retirees. It is government-backed, and specifically designed for the empowerment and financial security of senior citizens. Additionally, it offers an interest rate of 7.40% per annum. It can be opened in an individual capacity or jointly with your spouse. The nomination facility is available before and after opening the account.

The maximum lump sum deposit allowed under SCSS is ₹ 15 lakh and the minimum is ₹ 1,000. It is also eligible for deduction up to ₹ 1.50 lakh per annum under section 80C and interest earned under SCSS is payable on a quarterly basis and is exercisable from the date of deposition till March 31st / June 30th / September 30th / December 31st. However, make sure to claim the interest on time to earn extra.

While the interest earned is taxable, interest earned on bank deposits is exempt up to ₹ 50,000 annually, as per the provisions of section 80 TTB. For senior citizens having age between 60-80 exemption limit is ₹ 3 lakh, for over 80 years it is ₹ 5 lakh.

Union Budget 2021 & Health Insurance

Citizens aged 75 years and above don’t have to file their income tax return after Union Budget 2021 if pension and interest income is their only source of annual income. For a better tax-saving portfolio, you can follow 80:20 or 75:25 allocation to ELSS and the non-market linked tax-saving plans.

You can also take a health insurance cover, meanwhile, there are certain diseases and disorders, you can avail a deduction of Section 80DDB of ₹ 1 lakh or the actual amount spent, whichever is less. Similarly, for those who are engaged in charity, you can avail of deduction under section 80G of the Income Tax Act, 1961. Thus, Plan your tax-saving investment wisely.

It’s a very thoughtful process to choose your retirement plans and for the senior citizens, it should be a very serious decision, as it would be very important for the life coming ahead.

Amit Gupta is the Co-Founder and MD, SAG Infotech

CCL Products

With a total manufacturing capacity of 35k tonnes, CCL Products (CCLP) is India’s largest maker and exporter of instant coffee.

The firm has set a target price of Rs. 430, while the stock last traded on the NSE on November 6, 2021, at a price of Rs. 381 per share. Though a 6- to 9-month investment horizon is preferable for such ideas, our recommendations may bring some profit potential even for short-term investors.

US business a key growth driver over the long term

CCLP has done well in the US markets, and management expects to become the primary supplier for one of its biggest clients, which would be a significant lift for the company moving forward.

Target and Valuation

“Management of CCLP has revised its volume guidance upwards of more than 15% for FY22 from earlier 10-15% guidance on the back of commercialization of new capacity at Vietnam. It also expects a steady improvement in EBITDA/kg. Overall for FY22 topline is likely to be driven by a combination of volume and price/mix led growth. Despite sharp rise in RM prices and other Operating Costs, CCLP maintained its EBITDA Margin at 24%+ levels on the back of improved mix and better price realization. We recommend BUY with TP of Rs. 430/share,” the brokerage has said.

NOCIL Ltd

The firm has set a target price of Rs. 300, while the stock last traded on the NSE on November 8, 2021, at a price of Rs. 268 per share.

Strong industry growth prospects going ahead

The Indian tyre industry’s medium to long-term prospects have improved following the impact of COVID-19, with stable demand growth. Replacement demand and the OEM segment are projected to rebound quickly. Demand from export markets is also expected to be strong. NOCIL has claimed some market share increases in the local market as demand has improved significantly.

Target and Valuation

“We revise our FY22/23/FY24 estimates downwards to factor in the near-term pressure on business and profitability. Maintain BUY with a revised TP of Rs 300/share (previously Rs 315/share) valuing it at 20x FY24E EPS,” the brokerage has said.

Disclaimer

The above stocks are picked from the brokerage report of Axis Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article