Or should you explore other options for a higher guaranteed fixed income?
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When Ashwin Gupta (name changed) retired from his job at a public sector company in 2007, he put his money, as most retirees do, in fixed deposits (FD) and other small savings schemes. It was a time when the concept of Systematic Investment Plans (SIP) was still nascent and stocks were bought mainly by people who were well-versed with the markets.
“We are from the old generation, so we put our money in the post office or banks only, not mutual funds or equities or anything else. So there is no diversification of the portfolio, wherein you put some money in SIP, some in the share market,” says the 75-year-old Gupta. He adds that the FD rate for senior citizens, which was 10.5 to 11 percent from 2008 to 2010, has been steadily declining. It was 9.5 percent in 2011, 8 percent in 2017, 7.35 percent in 2018, 7 percent in 2019, and finally, 5.9 percent in 2020. “So anybody who had an FD with an interest [income] of, say ₹44,000 per quarter, is getting ₹30,000 per quarter,” says Gupta.
At the same time, he points out, prices have gone up. Apart from essentials, a specialist medical consultation that cost ₹400 a decade ago is nothing less than ₹2,000 now. With advancing age, there is also an increased dependence on air travel rather than trains, as well as domestic help. So decreasing FD rates mean that Gupta has had to start dipping into his savings to maintain the same standard of living.
FD rates have been falling for a few years now, part of a global trend where interest rates have been kept low, benefiting asset prices but disincentivising savings. With the Covid-19 crisis, rates are at their lowest in the past decade or so, prompting the need to look at other investment options as banks and the Reserve Bank of India (RBI) incentivise consumption and demand for money.