This Diwali, present your parents with smart financial gifts to show them how much they mean to you. Financial gifts have an edge over regular gifts as these have a potential to grow in value, and be of use in times of need.
Consider a senior citizen FD as an example. With a higher FD interest rate and no need for monitoring, this avenues compounds wealth in a safe and secure environment. Such gifts prove to be handy to fulfil goals and meet emergencies.
Here is a list of 4 out-of-the-box financial gifts ideas for your parents this Diwali
By investing in provident fund (PF) in your parent’s name, you gift them a corpus to fund their retirement. PPF deposits are is locked-in for 15 years and earn a decent interest, which is currently at 7.6%, higher than the interest offered by most bank deposits. Also, PPF enjoys EEE tax status, so you don’t have to worry about the tax incidence on your parents.
For instance, even if you invest Rs.1,000 a month for 15 years in a PPF account, on maturity which is after 15 years, the account will have earned Rs.33,98,630 and still attract no tax. Suppose your parents receive the same amount from another investment option and fall under the 20% tax bracket, they would have to pay around Rs.6.7 lakhs as tax. Therefore, consider making maximum contributions, as per your convenience, up to Rs.1.5 lakhs a year in this investment scheme.
Senior Citizen Fixed Deposit
The senior citizen FD scheme is a safe investment option as it is not linked to the market. For instance, by investing in Fixed Deposit for senior citizens, your parents can enjoy safety, stability and guaranteed returns with an FD interest rate of up to 9.10%. You can choose to invest in cumulative and non-cumulative FDs as per your parents’ financial needs. When you choose the non-cumulative variant, your parents can enjoy a regular source of income after retirement. By using an FD calculator, you can calculate the exact amount that your parents will receive upon maturity and invest accordingly. Also, the interest income of up to Rs.5,000 from company FDs is exempt from tax.
Senior Citizen Saving Scheme
SCSS is tailor made to cater to the needs of senior citizens and is offered by banks and post offices. You can deposit a significant amount of up to Rs.15 lakh. SCSS has a tenure of 5 years, which you can extend by 3 more years. The interest rate is around 8.3% to 8.5%, which is higher than many other investment options.
The advantage of this scheme over PPFs is that it offers regular interest earnings every quarter, and since it is backed by the government, your parents can count on the returns. However, the interest earnings in SCSS are taxable, although you can get a tax exemption on your investment up to Rs.1.5 lakh in a financial year.
You can invest in mutual funds via SIPs or a lump sum to gift your folks with financial security. Choose equity funds, debt funds, or a combination of the two to earn returns; however, remember that investing in equity can be riskier though more profitable. So, you may want to invest via SIPs for your parents by choosing a monthly or quarterly contribution pattern to average out the investment costs and market fluctuations and thus, minimising the risk involved.
Depending on the asset class you choose, mutual funds can give your parents decent returns. When you stay invested for a long-term via SIPs, say, 5-10 years, you can enjoy the power of compounding power and help your parents build a significant amount of wealth. You can also save on tax by investing in ELSS mutual funds and your parents can get tax-free dividends from it too.
So, consider gifting these unique, special gifts for your parents this Diwali that provide financial security and can help in fulfilling goals or meeting emergencies, and thus make for thoughtful gifts.