The Pradhan Mantri Vaya Vandana Yojana (PMVVY) was initially launched on July 21, 2017, to provide social security to senior citizens above 60 years. It also aimed at protecting them against a fall in their interest income due to the uncertain market conditions. The scheme was to remain for subscription till May 3, 2018.
Subsequently, the union budget of 2018-19, extended this period upto March 31, 2020, while also doubling the maximum purchase price from Rs 7.50 lakh to Rs 15 lakh. Since this scheme offers a very attractive interest rate and does not carry default risk, let us try to understand the details of the scheme.
Features of PM Vaya Vandana Yojana
PMVYY is an immediate annuity product and a senior citizen can buy it by paying a lump sum amount. The investor has the option of choosing monthly, quarterly, half-yearly and yearly pension. The pension depends on the option chosen and the purchase price. The scheme guarantees an assured return of 8% for the monthly option and 8.30% for the yearly option. This is better than the average rate of 6.50% that a Bank FD offers currently.
Some of the other features are that the maximum amount that you can invest is Rs 15 lakhs. Moreover, you can withdraw from the scheme prematurely under exceptional circumstances if you need money for treatment of critical illness for you or your spouse. The surrender value is subject to 98% of the initial investment amount.
It also allows users to avail loan facility up to 75% of investment amount after completion of three policy years. Loan interest will be recovered from pension amount payable to the user under the policy. At the end of 10 years, the purchase price will be returned to you. In case of death during the tenure, the investment amount will be returned to the nominee. Since the scheme operates as a pension plan, pension payment/purchase price is exempt from GST.
Where to buy?
Since LIC of India has been given the sole privilege to operate and manage the scheme, you have to buy the scheme from them. Customers can purchase the scheme offline and online on www.licindia.in.
Eligibility
While the minimum age is 60 years (completed) for entry in the scheme, there is no maximum age limit. However, the tenure of the scheme is 10 years.
Mode of pension payment
Depending on the mode of pension that you have chosen, pension payment will be made through NEFT or Aadhaar Enabled Payment System. The first instalment of pension will be paid after one year, six months, three months or one month from the date of purchase of the same depending on the mode of pension payment i.e. yearly, half-yearly, quarterly or monthly respectively.
So how good is the PMVVY?
While Senior citizen savings scheme scores over PMVVY in respect of Section 80C benefits, maximum amount, rate of interest and one-time extension, PMVVY scores over SCSY over tenure and frequency of pension payment.
When the objective of the government is to provide social security to elderly persons, the tenure of 10 years is short, as the life expectancy of Indians has been going up every year thanks to improvement in medical treatment and better sanitation. It is harsh to let the senior citizens fend for themselves.
As the scheme is unlikely to be extended beyond 30 March 2020 and as there are indications that interest rates on small savings are going to be slashed from 1 April 2020, it makes sense for senior citizens to invest in the scheme.
(The author is a Chartered Financial Analyst and a former banker and currently teaches at Manipal Academy of Banking, Bengaluru)
