Best fixed income options for retirees seeking tax efficiency
1. Certainty should be prioritized over growth
When you are young and at the early stages of your career, you can take more risks since you have a longer outlook and fewer dependents and expenses. As you grow older, risk taking ability reduces since you have more dependents and higher expenses.
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By the time you retire you should have invested most of your money into fixed income products which provide stable secure returns, including FDs, Bonds, Debt Mutual Funds, and Government savings schemes like PPF and SCSS. There will be times when other investment classes outperform, but retirees should evaluate their risk taking appetite before allocating money to them.
2. Prioritize safety over returns
Within the fixed income space itself, investors will see a wide range of returns. While certain products give higher returns, investors should evaluate the risk that they come with. Similarly certain products give low returns, and investors should explore whether they can get higher returns at the same risk level.
For example, many investors park their money in FDs which give 7-8% returns. Some investors chase higher returns of ~9% by buying FDs of relatively risker cooperative banks, or of well-known corporates (typically NBFCs). Instead of putting their money in FDs, they should explore the bond market. Corporate Bonds that are guaranteed by state governments are available at 9%. Investment grade Corporate Bonds are available at over 10% returns (in some cases upto 15%). Some of these are the same NBFCs that give FDs at
