Govt guarantees 8.30% to seniors for 10 years

Use it in combination with other assured return options as the maximum investment permitted is quite small

The newly launched Pradhan Mantri Vaya Vandana Yojana (PMVVY) ticks many of the boxes that investors seek in a pension product. It offers a guaranteed return of 8 per cent monthly (effective rate of 8.30 per cent annually) for 10 years. But, the maximum investment limit of ~7.5 lakh will prove grossly inadequate for most middle- and upper-class senior citizens. Hence, financial planners suggest it should be used by them in combination with other incomeyielding products.

The effective guaranteed return of 8.30 per cent for 10 years is the biggest advantage of the scheme, given that interest rates could decline over the long term. But the investment limit of ~7.5 lakh is applicable for an entire family, comprising the pensioner, spouse and dependents. In comparison, the Post Office Senior Citizens Saving Scheme (POSCSS) has a limit of ~15 lakh. So a retired couple can in aggregate invest ~30 lakh in it. The POSCSS offers 8.4 per cent interest, currently. But the rate is subject to a reset every quarter and could come down in future. “One advantage of the POSCSS is that you get tax deduction benefit under Section 80C at the time of investment, which PMVVY does not offer. So, pensioners should first utilise the limit under the POSCSS and then invest in PMVVY,’’ says Steven Fernandes, a Mumbaibased certified financial planner.

The income from the PMVVY is not exempt from income tax. However, the maximum monthly interest income possible from it is ~5,000 (~60,000 annually). Being taxable, it is better suited for people who don't have any taxable income or are in the lowest tax bracket. “This scheme is suitable for those in the lowest income bracket and for those who want an income payout. It is not targeted at those looking to create a corpus,” says Riddhi Agarwal, vice-president, My Financial Advisor.

Ideally, a senior citizen planning for income after retirement should look at a bouquet of investment products. “The combination of instruments you choose should offer different features, which include fixed benefits, market-linked returns, liquidity, etc.,” points out financial planner Gaurav Mashruwala. “The PMVVY on its own will not suffice. The maximum monthly pension is low. However, it has a few other benefits like you can take a loan against it, it offers some liquidity, and it also offers return of purchase price,’’ he says. Adds Manoj Nagpal, chief executive officer, Outlook Asia Capital: “At a time when a corporate fixed deposit with AA rating is offering around 8.5 per cent, this scheme offers governmentguaranteed annual return of 8.30 per cent. So, pensioners should definitely take advantage of it to the extent possible.”