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LIC's 8% Guaranteed Pension Gift For Your Senior Citizen Parents (PMVVY Updated)

[This blog post is an update on the PMVVY Scheme announced last year]

The budget 2017-18 had promised an assured-income pension plan for the senior citizens.

PMVVY — Pradhan Mantri Vaya Vandana Yojana — is the fulfillment of that promise.

As usual, LIC is the agency that would manage this scheme.

Listed below are the salient features of PMVVY...
... and the all important question - Is it a worthwhile investment vis-a-vis the other options?

One. It is a Single Premium Pension Plan, which starts paying pension with immediate effect.

Two. The pension is guaranteed at 8% per annum compounded monthly (effective rate 8.3%).

Three. Minimum eligible age to apply is 60 years (however, there's no maximum age limit).

Four. PMVVY is a scheme with 10-year tenure.

Five. It is open for investment for ONE YEAR ONLY... from May 4, 2017 to May 3, 2018.
Update : The scheme has been extended up to March 2020.

Six. Minimum pension is fixed at Rs.12,000 per annum [or Monthly: Rs.1000; Quarterly: Rs.3000; Half-yearly: Rs.6000]

Seven. Maximum pension is fixed at Rs.60,000 per annum [or Monthly: Rs.5000; Quarterly: Rs.15,000; Half-yearly: Rs.30,000]
Update : The maximum pension has been increased to Rs.1.20 lakhs p.a. [or Monthly: Rs.10,000; Quarterly: Rs.30,000; Half Yearly: Rs.60,000]

Eight. Based on 8% fixed rate and maximum pension of Rs.5000 p.m.,the maximum investment permissible works out to Rs.7.50 lakhs (Also see Note below)
Update : The maximum investment permissible has been increased to Rs.15 lakhs.

Nine. The maximum and minimum limit on pension is for the family as a whole (i.e. self, spouse and dependents).

A worthwhile investment option for the Senior Citizens.

Ten. Monthly pension will be credited directly to the Savings Bank Account.

Eleven. Pradhan Mantri Vaya Vandana Yojana can be surrendered — Surrender Value 98% of Single Premium paid — under exceptional circumstances only e.g. medical treatment of critical illness of self / spouse.

Twelve. Loan up to 75% of the amount invested can be availed, after completion of three years of the policy period. Rate will be decided from time to time and interest payable will be deducted from the pension amount due.

Thirteen. Nominee or legal heirs receive the amount invested, in case of the death of the pensioner.

Fourteen. The amount invested is paid back at maturity, when the pensioner survives the policy period of 10 years.

Fifteen.  PMVVY enjoys no tax benefits at all (i.e. no tax deduction at the time of investment like sec 80C, plus pension is fully taxable income).

Sixteen. Unlike typical pension plans, under PMVVY the pension payable is not dependent on the policy buyer's age... it is constant whatever may be the age of the person.

Seventeen. Unlike other pension plans, PMVVY has been granted exemption from Service Tax.

Eighteen. No medical examination is required.

In short, though Pradhan Mantri Vaya Vandana Yojana is classified as a Pension Plan, for all practical purposes it is nothing but a Fixed Deposit.

So, in this particular case, you can safely ignore my earlier warning 7 reasons why Single Premium insurance is a stupidity.

And, you can also ignore my arguments as to Why I don't like Annuity Plans, because (a) only a limited amount can be invested and (b) the investment is returned back after the specified period.

Moreover, it is giving 8.3% p.a. as effective returns.

This kind of interest rate is somewhat rare to get from banks nowadays. Plus it is only marginally lower than offers the same rate as the Senior Citizen Savings Scheme. Hence, one can surely invest a small portion of one's corpus in PMVVY (to the extent one can comfortably lock-in the money for 10 years).

By the way, PMVVY is not supposed to replace any of the existing investments such as Fixed Deposits, Tax Free Bonds, Post Office Schemes, Debt Mutual Funds, Non Convertible Debentures, etc. Nor is it supposed to be the sole or major source of income for the pensioner. Rather, it should be seen as one more nice addition to one's total portfolio of investment options available after retirement.

Concluding, Pradhan Mantri Vaya Vandana Yojana is a good scheme for the elderly senior citizens... of age 60 and above... who desire to earn some safe, assured and regular income without too much of hassles.

In fact, I think this is a good investment to gift to our senior citizen parents.

Depending on the frequency and amount of pension desired, the Single Premium amount payable is as under:
a) Monthly Pension : Min Rs.1000 - Rs.1,50,000 to Max Rs.5000 - Rs.7,50,000 Max Rs.10000 - Rs.15,00,000
b) Quarterly Pension : Min Rs.3000 - Rs.1,49,068 to Max Rs.15,000 - Rs.7,45,342 Max Rs.30,000 - Rs.14,90,683
c) Half-yearly Pension : Min Rs.6000 - Rs.1,47,601 to Max Rs.30,000 - Rs.7,38,007 Max Rs.60,000 - Rs.14,76,015
d) Annual Pension : Min Rs.12,000 - Rs.1,44,578 to Max Rs.60,000 - Rs.7,22,892 Max Rs.1,20,000 - Rs.14,45,783

In other words, the effective returns work out to 8.3% per annum.

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