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Varishta Pension Bima Yojna is an ideal gift for your parents

In his recent 2014-15 budget, Finance Minister Shri Arun Jaitley has announced reviving the Varishta Pension Bima Yojna (VPBY), an immediate annuity scheme for the senior citizens.

VPBY is a good scheme for the elderly... of age 60 and above... who desire to earn some safe, assured and regular income without too much of hassles.

Of course, regular readers of my blog would be shocked that I am recommending an annuity plan after repeatedly advising not to buy one. I clarify this U-turn later.

Salient features
1. Being an immediate annuity pension scheme, it starts giving returns without any waiting period.

2. There are 4 options to receive one's pension viz. monthly, quarterly, half-yearly and annually.

3. The minimum investment is Rs.66,665 which will give a pension of Rs.500 p.m. for lifetime.

4. The maximum investment is Rs.6,66,665 which will give a pension of Rs.5,000 p.m. for lifetime.

5. Upon death of the pensioner, the initial investment (called the Purchase Price) would be returned to the nominee / legal heir.

6. The returns are 9% per month, which effectively works out to 9.38% on an annualized basis.

7. The policy has to be continued for at least 15 years and can be surrendered only thereafter. However, in exceptional cases such as critical illness, the policy can be surrendered prior to completion of 15 years and 98% of the Purchase Price would be returned.

8. VPBY also offers loan facility, up to 75% of Purchase Price, after 3 years.

9. The scheme is open only for a year from Aug 15, 2014 to Aug 14, 2015.

Varishta Pension Bima Yojna suffers from many of the drawbacks of a typical annuity plan [See 'Why I don't like Annuity Plans?'].

But... coming to my reasons for the change of heart
- The primary redeeming feature is the high, guaranteed, fixed and secured return of 9.38% p.a. This is better than the 9.2% in Senior Citizen Savings Scheme and quite comparable with most banks FDs. Besides, if inflation moderates, these rates will move south but VPBY won't.
- The maximum investment amount is limited. So you won't accidentally lock-in too much money.
- It can be redeemed after 15 years and also offers loan facility.

Typical annuity plan don't offer these benefits. Moreover, VPBY will, at best, act as a supplement to other modes of investments. It won't be the sole or major livelihood for the pensioner. 

In view of the foregoing, I think Varishta Pension Bima Yojna could be an excellent gift you can give to your parents. Think quickly... it is a limited period offer.

(Note: As there is a service tax of 3.09%, the effective returns drop marginally from 9.38% to 9.10%.)

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