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Retiring soon and worried about regular cash flows? Pradhan Mantri Vaya Vandana Yojana is a scheme you can consider.
What is it?
Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension scheme launched by the government in July 2017 and is offered through the Life Insurance Corporation of India (LIC). The scheme is open for subscription till March 2020, and one can invest up to ₹15 lakh in it.
Benefits
PMVVY provides regular payout to those who invest in the scheme.
The scheme has a tenure of 10 years. Investors receive payouts at a pre-decided frequency, through the term. You can opt to receive the payouts on a monthly, quarterly, half-yearly or annual basis.
Pension
The maximum and minimum investment you need to make (referred to as purchase price) will depend on the amount and the frequency of the payouts.
Sample this. If you opt for a monthly payout, the minimum investment in the scheme is ₹1.5 lakh and you cannot invest more than ₹15 lakh. Under the monthly payout option, the pension amount ranges between ₹1,000 and ₹10,000.
If your investment is ₹1.5 lakh, you will be entitled to a monthly pension of ₹1,000.
If you wish to receive pension on a quarterly basis, the minimum purchase price is ₹1.49 lakh, on which you will receive a quarterly pension of ₹3,000. The maximum you can invest is ₹14.9 lakh, wherein you will get a quarterly pension of ₹30,000.
In case you opt for a half-yearly payout, you need to invest a minimum of ₹1.47 lakh, on which you will receive ₹6,000 twice a year. The maximum investment under the half-yearly plan is ₹14.7 lakh , on which you will be entitled to receive ₹60,000 twice every year.
You can also opt for an annual payout. The minimum investment is ₹1.44 lakh, with an annual pension payout of ₹12,000. The maximum purchase price in this case is ₹14.45 lakh, which will give you annual pension of ₹1.2 lakh.
You need to pay the purchase price as a lump sum, and the pension shall be credited based on the periodicity you choose.
Other benefits
In case of death of the holder during the term of the policy, the purchase price shall be refunded to the beneficiary. If the individual survives the policy term, he/she shall be paid the purchase price along with the final instalment.
Eligibility
PMVVY being a pension scheme, only those who have completed 60 years of age are eligible to subscribe to it. However, there is no upper limit on the age for subscription. One can subscribe to the scheme by visiting the nearest office of LIC or online through LIC’s portal.
Interest rate
The interest rate in PMVVY is attractive and varies between 8 per cent (in monthly payout) and 8.3 per cent (in annual payout) per annum. LIC credits the first instalment of the pension amount through NEFT or Aadhar-enabled payment system after one month, three months, six months or one year depending on the periodicity of payment chosen by the customer.
The interest on the investment is taxable. There is no tax break under Section 80C or other sections of the Income Tax Act. However, there is no tax on the purchase price paid at the end of the term.
Liquidity
In case of financial emergency during the tenure of the scheme, you can opt for a loan against the PMVVY investment. However, you can apply for a loan only upon completion of three years. The maximum loan shall be 75 per cent of the purchase price paid. The rate of interest charged on the loan amount will be determined at different points in time.
Interest on the loan amount will be recovered from the pension amount payable under the policy. Any loan outstanding shall be recovered from the claim proceeds, at the time of maturity.
Under exceptional cases, such as liquidity needs for treatment of terminal/chronic illness for self or spouse, pre-mature closure is allowed. However, you will have to part with 2 per cent of the purchase price as penal interest for closure before maturity.
In case you are unhappy with the conditions and terms of the policy, you can choose to opt out of the scheme within 15 days in case of offline investment, and 30 days in case of online investment, from the date of receipt of policy, after stating the reasons.
Though this scheme is good for senior citizens who do not have pension benefits, as an investment option it scores less than Senior Citizen Savings Scheme (SCSS), which offers 8.6 per cent annualised return. Also, tax benefit under Section 80C makes SCSS more attractive than PMVVY. Besides this, premature closure in SCSS attracts a lower penal charge of 1 per cent.
If you have exhausted your SCSS limit (₹15 lakh), the PMVVY is a good choice.
The writer is an independent financial consultant
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