I will be getting about ₹90 lakh as my PF retirement corpus. I would like to have an optimum mix of investment options. As this is my retirement corpus, the priority will be safety, capital protection and managing inflation.

Mohan K

There are some investment options that are safe, offer capital protection and give good returns.

First, it is a good idea to invest in the Senior Citizen Savings Scheme (SCSS) offered by the post office and some banks. The SCSS is fully safe, being guaranteed by the Central government.

An individual can invest a maximum of ₹15 lakh in the scheme. It has a tenure of five years, extendable by another three years.

The scheme currently offers a return of 7.4 per cent per annum. This return gets enhanced due to the tax break under Section 80C (on investment of up to ₹1.5 lakh a year) in the old tax regime.

The interest on the SCSS is paid out quarterly and is taxable. But senior citizens can claim a deduction of up to ₹50,000 a year under Section 80TTB in the old tax regime on interest received from banks and post offices.

So, a good portion of the interest earned on SCSS deposits can escape the tax net.

The maturity proceeds are exempt from tax. Your spouse, if a senior citizen, can also invest up to ₹15 lakh in the SCSS.

Next, you can consider investing in the 7.75 per cent Government of India Saving Bonds offered by the RBI. You can purchase these bonds, also known as RBI savings bonds, from the Stock Holding Corporation of India or from some banks and brokers that sell it, online or at their branches. These bonds have a tenure of seven years and come with both cumulative and non-cumulative (half-yearly interest payment) options.

The instrument is completely safe, and the interest rate (7.75 per cent) is quite attractive in the current scenario when interest rates offered by most banks on deposits have reduced considerably. You can invest any amount in these bonds; there is no cap.

There is no tax break on the investment and the interest earned is taxable.

After this, you can invest some money in bank deposits that offer good returns.

With the recent increase in bank deposit insurance from ₹1 lakh to ₹5 lakh per bank, there is now more comfort in investing in bank deposits to this extent. The rates offered by some private sector banks such as DCB and IDFC First Bank (up to 7.5 per cent across tenures) are relatively high than that of peers.

Also, small finance banks such as Ujjivan, Jana, Fincare, Suryoday, Equitas and AU offer the best rates among banks — between 7.5 per cent and 9 per cent for some tenures. But don’t go overboard on deposits with small finance banks — the higher returns could entail higher risks. It helps that many banks across the board often offer higher rates (up to 0.5 percentage points) to senior citizens, on deposits.

Another option that you can consider is tax-free bonds available in the secondary market. Some of these bonds have reasonably good liquidity and you can buy them if you have a demat account. The yield-to-maturity for some of these bonds currently hovers at 5-5.5 per cent. Being tax-free, the pre-tax yield on these bonds can be 7.2-8 per cent for investors in the 30 per cent tax bracket; it will be lower for those in lower tax brackets.

Currently, inflation is relatively low. So, the fixed-income options mentioned above, in many cases, should be able to deliver positive real returns (nominal returns minus inflation) on a post-tax basis. But capital protection guarantee and inflation protection do not always move in tandem.

So, low-risk investment avenues such as those mentioned above may not always be able to beat inflation. That said, given the high priority you assign to safety and capital protection of your retirement corpus, this is a trade-off that seems worth taking.

Send your queries to mf@thehindu.co.in