My mom has savings of ₹8 lakh. She is 60 years old. She wants to invest to get good assured returns better than from FDs. She should be able to pull out the money in case of medical emergencies. Please suggest a good option for her.

Ramanathan M

The best option for her would be the India Post Senior Citizen Savings Scheme. An SCSS account can be opened through leading banks as well. This is a government-backed scheme where senior citizens can deposit up to ₹15 lakh and get quarterly interest payouts. The current interest rate on the scheme is 7.4 per cent and if she can invest before September 30, she can lock into this return for five years. This return is substantially higher than the 5-6 per cent offered by deposits with leading banks and NBFCs, despite the scheme being a safer instrument. The main advantage of the SCSS account is that it can be closed any time, albeit with interest penalty. If closed within 1 year, your mother will forfeit interest, within 2 years 1.5 per cent will be deducted and after 2 years 1 per cent will be deducted.

I am an avid reader of Portfolio. I recently read articles on NPS where you concluded that the performance of NPS debt schemes is better than mutual funds. But its equity schemes don’t perform as well. I am 53, likely to retire at 60 and would like to encash my NPS investments at about 70. I have a substantial chunk in Tier 1 and am investing both in Tier 1 (moderate, auto choice, HDFC) and Tier 2 (same) on a monthly basis. Should I stop my equity investments in NPS and invest it in mutual funds while using NPS as a pure debt tool? Should I change my preference to Active choice, with 50 per cent allocation to C and G with LIC? Should I continue monthly investments in the Tier 2 account with the corporate bond option? Please advise.

Shankar Mazumdar

It is true that fund managers overseeing the equity (E) option of the NPS have not managed to consistently beat benchmarks. It therefore makes sense to invest in open-end index funds instead of the equity option of the NPS, as it will not only fetch you better returns but also offer you liquidity and flexibility of changing your choices at any time. You can consider investing in a combination of a Nifty 50 and Nifty Next 50 fund or a Nifty 100 fund. Nippon Junior Bees FOF and ICICI Pru Nifty Index Fund are low-cost index funds playing on Nifty 50 and Next 50 and Axis Nifty 100 Index Fund is a good option for Nifty 100. Given its compulsory lock-in till the age of 60 and complex withdrawal rules, the equity option of NPS is suitable for investors who may not have the discipline to hold their investments until retirement and may withdraw prematurely if offered liquidity. For others, based on current performance, index funds offer a better alternative. However, the pension regulator is currently in the process of overhauling the options, fees and fund managers of the NPS and there is a possibility that equity performance could improve after this rejig.

It does make sense to change your preference to Active choice and divide your investments between the corporate bond and government security options of the NPS. Do note, however, that even the performance of these two options has benefited from the falling interest rate scenario of the last 5-6 years. When rates fall, bond prices appreciate, propping up the NAVs of the corporate bond and government security funds in the NPS. Should rates rise now, the returns of the C and G options of NPS over the next 2-3 years will decline and be far less impressive than the last five years. However, if you have a sufficiently long holding period of over five years, interest accruals will make up for the lack of bond price gains and you can also ride out the adverse phase in the rate cycle. Therefore, to answer your question, it does make sense to go for the Active choice with the C and G options in Tier 1 and continue investing in Tier 2. The C option of NPS invests in AAA and AA corporate bonds while the G option invests in government bonds. The latter is safer from a capital protection perspective, though it may offer lower returns than the corporate bond option. Make your choice between C and G based on risk appetite.

Send your queries to