Equities or bank FDs: Where to park retirement money?

I am a senior citizen. My fixed deposits are not generating enough returns. I want to invest in shares and IPOs to earn decent returns. Is it a wise decision? - S J Ramaiah, Khammam

After several decades of working, retired or senior citizens get a retirement corpus with or without pension income. Safeguarding their hard-earned lifetime savings must be their primary priority. Most of them cannot afford diversification of investments at this age. Hence, most senior citizens prefer to park their money safely and free from unexpected depreciation due to changing market scenarios. Fixed deposits are a safe bet for senior citizens. Fixed deposits ensure safety and offer capital preservation and flexibility for senior citizens.

There were offers galore with special interest rates for senior citizens from many banks in the recent past. Many major banks, even now, are offering remunerative interest rates for senior citizen deposits. Fixed deposits are the only option available if they are willing to earn a reasonable return.

Your deposits must give the interest to match inflation if not higher than the inflation rate. In the falling interest rate scenario, your return on FDs is less. At some point, interest rates will go up again to keep pace with inflation. Equities benefit more from higher inflation than FDs. Equities and other options offer higher returns than these special FDs. But, they come with a certain degree of risk. The acceptable degrees of risk differ from person to person and financial conditions.

Senior citizens who are dependent on interest income and pension should stay away from the equity market. Fixed deposits held with some cooperative banks may prove costly as some banks are prone to defaults. However, there is a deposit insurance of up to five lakh per account. Fixed deposits held with corporate companies also involve risk. Depositors are undoubtedly vulnerable to default risk if they choose the wrong bank and deposit lifetime savings.

Finding the track record and financial health of a bank is not complicated. Do not fall prey to lucrative offers or word of mouth marketing. Pay attention and seek reliable and noteworthy information to recognize its functioning and performance. Many people come up with excuses to avoid this critical exercise. Hence, keep your deposits with multiple banks to safeguard your retirement corpus. Fixed deposits are the preferred investment mode for average Indians as FDs give regular income. Sadly, the interest rates on FDs have been low for quite some time. Senior citizens and other depositors must not be downhearted despite low-interest rates.

The scenario will gradually improve, and depositors can take advantage. Remember, tax deduction at source (TDS) is applicable on interest income generated from fixed deposits. Senior citizens must submit Form 15H to banks to get rid of TDS. Until FY19, banks and post offices were required to levy 10 per cent TDS when the aggregate interest income on deposits exceeds Rs 10,000 per financial year. From FY20, the TDS limit on interest from deposits hiked to Rs 40,000 and Rs 50,000 in the case of senior citizens. Consequently, Banks and Post Offices are not deducting TDS if the aggregate interest on all deposits is less than Rs 40,000. Section 80TTB was introduced from the financial year 2018-19. Under section 80TTB, Senior citizens can avail additional tax deduction of Rs 50,000 on the interest income from deposits.

Is it safe to open demat accounts with the so called discount brokers in India? T Veerabadhrappa, Mysore

In India, stockbrokers must possess a valid Certificate of Registration from SEBI in order to operate and indulge in stockbroking activities. Always deal with the registered broking firms. Many market intermediaries, like depository participants, banks, and share transfer agents, are involved in the stock markets' functioning. These intermediaries are registered with SEBI to abide by the prescribed norms to protect the investors. Fundamentally, the shares and mutual funds in your Demat account are held by central depositories and not with your stockbroker.

National Securities Depository Ltd (NSDL) and Central Securities Depository Ltd (CDSL) - are two depositories in India. Various Depository Participants linked to each one of them in India. The brokerage firms only facilitate a trading platform to Buy and Sell. Hence, the financial securities in your Demat account remain intact with depositories. SEBI tightens norms for the stockbroking firms after The Karvy Scam Fallout. Every brokerage house needed to adhere to the bylaws so that this kind of dishonest trick would not happen again, and no brokerage could swindle the investors.

(The author is a SEBI licensed Research Analyst. The alumnus of the Indian Institute of Foreign Trade (IIFT), he had held leadership roles at National Geographic, Reliance Radio Television Luxembourg, STAR TV, etc)