The new Prad­han Mantri Vaya Van­dana Yo­jana of­fers a fixed 8 per cent re­turn, if you’re pre­pared to stay in­vested for 10 years

India Today - - COVER STORY - by Renu Ya­dav

At a time when in­ter­est rates on bank de­posits are down, the gov­ern­ment has of­fered se­nior ci­ti­zens an al­ter­na­tive op­tion—a new pen­sion plan. The Prad­han Mantri Vaya Van­dana Yo­jana (PMVVY), sold by the Life In­sur­ance Cor­po­ra­tion of In­dia, of­fers a fixed an­nual re­turn of 8 per cent for 10 years.

When to in­vest

The scheme will re­main open un­til May 3, 2018, for in­vest­ment by in­di­vid­u­als over 60 years of age. It can even be pur­chased on­line.

Pen­sion cy­cle

In­vestors can choose to re­ceive their pen­sions on a monthly, quar­terly, half-yearly or yearly ba­sis. There is a min­i­mum and max­i­mum amount one can in­vest, depend­ing on the pay­ment cy­cle. For ex­am­ple, to get the min­i­mum pen­sion of Rs 1,000 per month, the in­vestor has to put in Rs 1.5 lakh. To re­ceive the same amount on an an­nual ba­sis—Rs 12,000—the in­vest­ment re­quired is about Rs 1.45 lakh.

Sim­i­larly, to get the max­i­mum pen­sion of Rs 5,000 per month, one needs to in­vest Rs 7.5 lakh. To re­ceive the same pen­sion an­nu­ally—Rs 60,000—the re­quired in­vest­ment is about Rs 7.23 lakh.

Pre­ma­ture with­drawal

An early exit from the in­vest­ment is al­lowed only if the in­vestor or his/ her spouse needs the money for treat­ment of a ter­mi­nal or crit­i­cal ill­ness. Also, in case of a pre­ma­ture with­drawal, only 98 per cent of the amount in­vested will be re­funded. How­ever, if the pen­sioner dies dur­ing the pol­icy term of 10 years, the pur­chase price will be re­funded to the ben­e­fi­ciary.

Ma­tu­rity pro­ceeds

The pen­sioner will get the amount in­vested with the last pen­sion in­stal­ment.

Loan fa­cil­ity

The scheme al­lows the pen­sioner to ap­ply for a loan three years af­ter in­vest­ment, and up to 75 per cent of the value of the in­vest­ment.

Should you buy?

With the Se­nior Ci­ti­zen Sav­ings Scheme (SCSS) of­fer­ing an in­ter­est rate of 8.3 per cent, is PMVVY a good op­tion? Ex­perts say that since bank de­posit rates are fall­ing, it makes sense to in­vest in the scheme, pro­vided one is ready to lock in the money for as long as 10 years. With a ten­ure of five years, the SCSS has a shorter lock-in, but un­like PMVVY, the in­ter­est rate of­fered is sub­ject to quar­terly re­vi­sion. How­ever, one can in­vest much more in the SCSS—up to Rs 15 lakh, which is dou­ble the PMVVY limit. Do re­mem­ber that the in­ter­est earned from both schemes is tax­able.

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