Our Prime Minister had announced a new Pension Scheme for Senior Citizens offering 8% returns for 10 years in December 2016. The proposal was also stated in Budget 2017. This has finally been launched on May 4, 2017 with the name of Pradhan Mantri Vaya Vandana Yojana 2017-18 (PMVVY).
In this post we review PMVVY and check if senior citizens should invest into it?
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The table below gives the minimum/maximum purchase price and the respective pension that one would receive for 10 years. The maximum investment limit was revised in Budget 2018 from Rs 7.5 Lakh to Rs 15 Lakh.
You can buy anything in between (including both amounts).
The maximum limit above is for one family. Family here means spouse and the dependents.
Also Read: Best Tax Saving Investments u/s 80C
The policy can be surrendered under exceptional circumstances like money required for the treatment of any critical/terminal illness of self or spouse . The Surrender Value payable shall be 98% of Purchase Price.
Loan facility is available after completion of 3 policy years. The maximum loan that can be granted shall be 75% of the Purchase Price. The rate of interest to be charged for loan amount would be determined from time to time by LIC. Loan interest will be recovered from pension amount payable under the policy.
Also Read: 13 Investments to Generate Regular Income
Also Read: 25 Tax Free Incomes & Investments in India
You can buy Pradhan Mantri Vaya Vandana Yojana online through LIC website.
There are few investments which still offer more than 8% returns for senior citizens. You must look into the same before committing your funds to Pradhan Mantri Vaya Vandana Yojana.
1. Deutsche Bank (5 years), IDFC Bank (366 days), Lakshmi Vilas Bank (750 days) offers 8.0% for senior citizens fixed deposit.
The added advantage is you can withdraw the amount anytime.
Also Read: Best Interest Rate on Senior Citizens Bank Fixed Deposits
2. NCDs/Bonds listed on Stock exchange. Some examples:
The problem is the liquidity for these bonds are low and hence it’s difficult to buy/sell. However you can buy easily when they are issued.
Also Read: Latest NCD open for subscription
3. Tax Free Bonds listed on Stock Exchanges
PFC, HUDCO, NABARD, IRFC etc had issued tax free bonds in the past and are available on exchanges with yields in the range of 6.44%. The bonds have residual maturity of 10 to 15 years. As the interest received is tax free, these turn out to be better investments for senior citizens in highest tax bracket. The interest payout is annual. Also all the companies are backed by Government of India and also AAA rated – hence safe for investment.
4. Senior Citizens Saving Scheme
Senior Citizens Saving Scheme offers 8.3% interest which is payable quarterly. This too is backed by Government of India and so is safe. The problem is you can lock-in your amount only for 5 years.
Also Read: All about Senior Citizens’ Savings Scheme
5. DHFL Aashray Deposit Plus
DHFL is housing finance company and is rated AAA. It offers 8.45% to senior citizens for fixed deposit up to 10 years. You can choose to get interest monthly, quarterly, half-yearly or yearly.
6. Debt Mutual Funds
Regular income can be generated by investing and then using SWP (Systematic Withdrawal Plan) to generate regular income. This is usually more tax efficient than fixed deposits. Also the returns are closer to bank fixed deposits.
Read: How SWP in Debt Mutual Funds is better than Fixed Deposit for Regular Income?
I think Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a good and simple product especially for aged people looking for regular income after retirement. But there are other investments as listed above which offer more returns. You must evaluate those before locking your money in the pension plan.
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View Comments
Dear Amit,
Is pension taxable ..... ?? I m looking for scheme where i can get around 8% interest and with no taxe on interest or pension . kindly advise.
Yes most pensions including the one in PMVVY is taxable. I had mentioned avenues where senior citizens can get more than 8% returns but that's before tax. After tax 8% with safety may not be possible in present circumstances.
Is it possible to open a joint account in the name of husband and wife, if so can it continue after death of husband or wife for the left out period of 10 years.
I don't think joint account is possible in insurance!
Dear Amit, if a couple is already getting pension from central govt. and annuity from LIC after pension commutation, and has also exhausted all other avenues like 30 lakhs in SCSS, can they still invest in PMVVY? Of course, 10 yrs. is too long a period and the post-tax returns are hardly attractive, but the safety factor may attract some couples.
Yes you can invest in PMVVY even if you have pension from government and investment in SCSS.
Dear Amit, I heard from a lic person that, if a person had a VARISHTA PENSION BIMA YOJANA than that person is not eligible for PMVVY scheme. Is it true.
There is nothing mentioned on this sort in the scheme document. I think the below line is causing confusion:
Ceiling of maximum pension is for a family as a whole i.e. total amount of pension under all the policies allowed to a family under this plan shall not exceed the maximum pension limit. The family for this purpose will comprise of pensioner, his/her spouse and dependents.
As per my interpretation the limit is for this plan and does not say anything about other plans!