Due to the coronavirus and lockdown, active income of people earned from their jobs or businesses has taken a beating, because of salary cuts, job losses or closed businesses. Simultaneously, passive income of retirees, senior citizens, self- employed people and others is also shrinking due to deep cuts in interest rates, losses in debt funds and lack of investment options.

The scrapping of six debt fund schemes by Franklin Templeton has led to redemptions being stopped indefinitely. This has contributed to the aversion to debt funds. Many other debt funds have written off their investments made in the paper of IL&FS, DHFL etc. leading to NAV erosion for investors. Falling bank deposit rates make fixed deposits less attractive. Country’s largest bank, State Bank of India (SBI) has recently slashed the interest rates payable on its fixed deposits. SBI fixed deposit now pays a maximum of 5.4 per cent interest.

Reserve Bank of India (RBI) announced the closure of government bonds that paid 7.75 per cent interest. This was a popular instrument among the retired, who used to invest in this instrument with a maturity period of 7 years. “The Government of India … hereby announces that the 7.75 per cent savings (Taxable) Bonds, 2018, shall cease for subscription with effect from the close of banking business on Thursday, May 28, 2020,” the Reserve Bank of India (RBI) said in a notification on its website.

Uncertainty and volatility in the stock markets has made investments in equity and equity mutual funds, a high-risk avenue. And there are no fresh public issues of NCDs by large corporates. Under these circumstances, there are very few safe and attractive investment options to earn good passive income. Some of such options are listed below.

Fixed deposits of top-rated companies

Fixed deposits of top-rated companies could be an attractive investment option, especially for those desiring safety and reasonable returns. Fixed deposits of top companies such as HDFC, Bajaj Finance, ICICI Home Finance and Mahindra Finance are good options. These companies have stable track record, strong parentage and top-notch ratings. Bajaj Finance offers 7.6 per cent for a five-year deposit. Mahindra Finance pays 7.8 per cent for 40 months. Investors in such corporate deposits can earn as much as 200-240 basis points higher return than deposits with a nationalized bank like SBI. Investors can opt to receive interest payment on a monthly, quarterly or annual basis on such corporate deposits.

However, one should build his or her contingency fund first through bank deposits and after that is done, opt for such corporate deposits. Since the investments in corporate deposits are illiquid, investment must be made with a view of holding till maturity.

Pradhan Mantri Vaya Vandana Yojana (PMVVY) Scheme

The Life Insurance Corporation of India (LIC) has recently modified the Pradhan Mantri Vaya Vandana Yojana (PMVVY) Scheme for senior citizens. After this modification, according to the LIC website, the scheme will earn an assured return of 7.4 per cent per annum which will be payable monthly for the entire duration of 10 years. The scheme is open from May 26 up till March 31, 2023, that is, for three financial years. This modification of the scheme comes a few days after the Union Cabinet approved its extension up to March 31, 2023. This scheme is offered only by LIC for senior citizens (age 60 years and above). Those who want to invest in the scheme can do so online via the LIC website Licindia.in or can also purchase the scheme offline by visiting the nearest LIC branch.

Senior citizen savings scheme (SCSS)

Investing in SCSS is a good opportunity for senior citizens above 60 years to earn higher return. This is an effective and long-term saving option which offers security and added features that are usually associated with any government-sponsored savings or investment scheme. This scheme is available through authorized banks and post offices across India. An individual can invest a maximum amount of Rs.15 lakh, individually or jointly in an SCSS account. At the current 7.4% return rate, it is very good as compared to a FD account. Tax deduction of up to Rs.1.5 lakh can be claimed under Section 80C of the Income Tax Act. The tenure of this investment scheme is flexible with an average tenure of 5 years which can be extended up to 3 additional years.

Post Office Schemes

If you are looking for a short-term investment plan, consider post office schemes. One of the best schemes provided by Indian Postal Service is the post-office monthly income scheme (POMIS). It offers good returns with minimal risk. The low-risk POMIS generates a steady income. One can invest up to Rs. 4.5 lakhs individually or Rs. 9 lakhs jointly, and the investment period is 5 years. Capital protection is its primary objective. For the quarter ending 30 June 2020, interest rate is 6.6% per annum, payable monthly.