Pradhan Mantri Vaya Vandana Yojana (PMVVY) – Good Pension Plan for Senior Citizens

Pradhan Mantri Vaya Vandana Yojana or PMVVY was first announced in Budget 2017 and launched on May 4, 2017. The scheme was open till March 31, 2020. The good news is PMVVY has now been extended to March 31, 2023 albeit with lower interest rates. In this post we review the new Pradhan Mantri Vaya Vandana Yojana and check if senior citizens should invest in this?

Pradhan Mantri Vaya Vandana Yojana Features

• Minimum age for investment is 60 years
• There is no Maximum age for entry
• It gives return of 7.40% compounded monthly. Earlier this rate was 8%.
• You can choose to receive pension monthly, quarterly, half yearly or annually
• The maturity period is 10 years. At the end of maturity period the investment amount. would be returned.
• The pension payment shall be through ECS/NEFT only
• On death of the policy holder, the premium is returned back to the nominee
• The plan is available till March 31, 2023
• The premium is exempted from GST
• LIC Plan Number: 842
• UIN: 512G336V01

PMVVY Purchase Price and Pension

The table below gives the minimum/maximum purchase price and the respective pension that one would receive for 10 years. In case of PMVVY, the minimum and maximum investment is set up on the amount of pension. So if you look in the table below the minimum pension that can be given in monthly option is Rs 1,000 and so you have to invest Rs 162,162. Similarly the maximum monthly pension you could get with Pradhan Mantri Vaya Vandana Yojana is Rs 9.250. For that you need to invest Rs 15 Lakh.

The maximum investment limit is Rs 15 Lakh and the minimum limit is Rs 156,658. You can buy anything in between (including both amounts). The maximum limit above is for one family. Family here means spouse and the dependents.

Tax on PMVVY

The pension received is added to your annual income and taxed based on your income tax slab.

PMVVY Surrender Value

The policy can be surrendered under exceptional circumstances like money required for the treatment of any critical/terminal illness of self or spouse . The Surrender Value payable shall be 98% of Purchase Price.

Loan on PMVVY

Loan facility is available after completion of 3 policy years. The maximum loan that can be granted shall be 75% of the Purchase Price. The rate of interest to be charged for loan amount would be determined from time to time by LIC. For the loan sanctioned till 30th April, 2021, the applicable interest rate is 9.5% p.a. for the entire term of the loan. Loan interest will be recovered from pension amount payable under the policy.

PMVVY Free look-up period

If a policyholder is not satisfied with the “Terms and Conditions” of the policy, he/she may return the policy to the Corporation within 15 days (30 days if this policy is purchased online) from the date of receipt of the policy stating the reason of objections.
The amount to be refunded within free look period shall be the Purchase Price deposited by the policyholder after deducting the charges for Stamp duty and pension paid, if any.

Pradhan Mantri Vaya Vandana Yojana Review

The good

1. This is a simple product with a guaranteed return. 
2. The scheme is guaranteed by Government of India and is managed by LIC. So it has safety of highest level.
3. As the economy develops the interest rates come down. Hence it’s a good product to lock 7.4% interest rates for 10 years. However banks too offer fixed deposit tenure for 10 years.
4. The policy can also be surrendered before maturity for treatment of illness.
5. 75% Loan against policy can be a good thing for emergency liquidity needs.
6. No GST on the premium paid for PMVVY unlike other pension products.

The Bad

1. The pension you receive is taxable. This would be added to your income and taxed at your marginal tax rate, similar to fixed deposits. 
2. The amount is locked-in for 10 years, so the money may not be available if required urgently (other than in case of illness)
3. The pension is not adjusted to inflation. Assuming inflation at 7%, the purchasing power of Rs 5,000 would reduce to Rs 2,500 in 10 Years.

How to Buy Pradhan Mantri Vaya Vandana Yojana?

You can buy Pradhan Mantri Vaya Vandana Yojana online through LIC website or contact LIC agent to buy it offline.

Investments offering more than 7.4% for Senior Citizens

There are few investments which still offer more than 7.4% returns for senior citizens. You must look into the same before committing your funds to Pradhan Mantri Vaya Vandana Yojana.

Senior Citizen’s Saving Scheme

Senior Citizens Saving Scheme offers 7.4% interest which is payable quarterly. This means SCSS interest is slightly lower than PMVVY as PMVVY pays the same 7.4% monthly. The other issue is with SCSS you can lock-in your investment for 5 years only. One advantage of SCSS is it’s eligible for tax benefit u/s 80C.

Bank Fixed Deposits

A few banks like RBL, DCB, IDFC Fist bank offer higher interest rates on their fixed deposits for senior citizens. All these FDs are compounded quarterly.

• DCB offering 7.85% for 3 to 10 years fixed deposit
• IDFC First bank offers 7.75% interest for 1 to 10 year fixed deposit
• RBL offers 7.65% for 5 to 10 years deposit

There are Small banks like Suryoday Small Finance Bank which offers 9.25% interest for 5 year FD for senior citizens. There are multiple Small banks offering more than 7.5% on their senior citizen’s FDs.

NCDs/Bonds

There are new issues of NCDs which offer interest higher interest in the range of 8% to 10%. However there is some credit risk involved and you should only invest in these if you understand and can take such risks with your retirement money.

You can also buy bonds from stock exchange through your demat account. However, the problem is the liquidity for these bonds are low and hence it’s difficult to buy/sell. However you can buy easily when they are issued.

SWP in Debt Mutual Fund

Regular income can be generated by investing in Debt Mutual Funds and then using SWP (Systematic Withdrawal Plan). The returns are similar to fixed deposits of banks. It’s more suited if you are in highest tax bracket.

Tax Free Bonds

PFC, HUDCO, NABARD, IRFC etc had issued tax free bonds in the past and are available on exchanges with yields in the range of 5.5%. The bonds have residual maturity of 10 to 15 years. As the interest received is tax free, these turn out to be better investments for senior citizens in highest tax bracket. The interest payout is annual. Also all the companies are backed by Government of India and also AAA rated – hence safe for investment.

Should you invest in PMVVY?

Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a good and simple product especially for aged people looking for regular income after retirement. But there are other investments as listed above which offer more returns. You must evaluate those before locking your money in the pension plan.

Pradhan Mantri Vaya Vandana Yojana FAQs