How to invest in fixed deposits

Most retired people think that they do not have a strong income stream to support their livelihood, so they should focus on capital preservation and invest in fixed deposits. Cash flow is more important for them than higher returns. Fixed deposits are the preferred choice for most retirees to receive regular cash flow in the form of interest income.

The key benchmark lending rate has gone up by 225bps to 6.25 percent over the last six months, despite the fact that interest rates have been on an upward trajectory with the increase in repo rates by the Reserve Bank of India RBI. The Monetary Policy Committee is expected to announce the repo rate hike by 25 bps tomorrow, although inflation is in control and interest rates are expected to stabilize in the long run.

Here is a comparison of how leading banks are offering interest rates on fixed deposits for senior citizens:

People keep their post-retirement corpus in conservative instruments like fixed deposits. It is advisable to review your asset allocation plan regularly to see if you can allocate more money in other instruments like debt funds, Senior Citizen Saving Scheme, or PPF to achieve a higher rate of return. Recently, Nirmala Sitharaman proposed to increase the upper limit from Rs 15 lakh to Rs 30 lakh for Senior Citizens Savings Scheme, which is currently offering 8 per cent per annum.

Fixed deposits have a predetermined return rate, whereas liquid funds or Ultra Short Duration Funds invest in money market instruments and hence their rate of return may vary depending on market conditions. Interest income on fixed deposits is treated as income from other sources and is taxed as per the income tax slab one falls into. It's treated as a short or long-term capital gain depending on the period of holding. If sold after 3 years, it is treated as long-term capital gain and taxed at 20 per cent with indexation. If sold before 3 years, it is treated as short-term taxable gain and taxable as per your tax slab.