PM Vaya Vandana Yojana Or SWP: Which Is Better?
Why SWP Is Better Than PM Vaya Vandana Yojana
Retired persons often feel option-less when the issue of good savings scheme arises which can give them a regular income. Though there are many pension schemes launched by various insurance companies, but the terms and conditions of those schemes may prove hard to understand for elders. Due to this they tend to invest in traditional savings scheme which can give them a regular income as pension monthly or quarterly. Senior citizen savings scheme and bank fixed deposits are included in it. But as the interest rates of small saving schemes have been on a decline, our elders are getting lesser interest than earlier.
What Is PM Vaya Vandana Yojana
The government has launched a new pension scheme, especially for retirees, to provide a solution of elders’ problem. This scheme is PM Vaya Vandana Yojana which was launched on 4th May 2017. This scheme is open till 3rd May 2018 year and its benefit will be available for those persons whose age are 60 and above. Under this scheme, they would have to deposit a certain amount (just like FD). After that the elders will get a regular pension for the period of 10 years.
Features of the PM Vaya Vandana Yojana
Some of the salient features of PM Vaya Vandana Yojana are as follows:-
- LIC of India has been given the sole privilege to operate this scheme, Pradhan Mantri Vaya Vandana Yojana. This scheme can be purchased offline as well as online. To Purchase this scheme online, you can log on to website www.licindia.in.
- Minimum Pension is Rs. 1,000/month & maximum pension is Rs. 5,000/month.
- Ceiling of maximum pension is for a family as a whole i.e. total amount of pension under all the policies allowed to a family under this plan shall not exceed Rs. 5,000/month.
- For monthly pension, the senior citizen will have to pay minimum Rs. 1.5 lakh & maximum Rs. 7.5 lakh.
- The modes of pension payment are monthly, quarterly, half-yearly & yearly. The pension payment shall be through NEFT or Aadhaar Enabled Payment System.
- The pension amount is taxable and the pensionholder will have to pay tax according to his/her slab.
- Under PM Vaya Vandana Yojana, interest rate is 8% which will be fixed for 10 years.
Some Important Points About PM Vaya Vandana Yojana
According to the terms and conditions of the scheme, its benefits will be as under:-
- Pension Payment:- On survival of the Pensioner during the policy term of 10 years, pension in arrears (at the end of each period as per mode chosen) shall be payable.
- Death Benefit:- On death of the Pensioner during the policy term of 10 years, the Purchase Price shall be refunded to the beneficiary.
- Maturity Benefit:- On survival of the pensioner to the end of the policy term of 10 years, Purchase price along with final pension installment shall be payable.
*Source:- LIC website
How Beneficial Is PM Vaya Vandana Yojana
There is no doubt that compared to bank FD or Senior Citizen Savings Scheme, PM Vaya Vandana Yojana is better. This is because former schemes offer interest not more than 7% but the PM Vaya Vandana Yojana offers 8% interest. But in my opinion there is a scheme which will prove much better than PM Vaya Vandana Yojana for senior citizens. This is Systematic Withdrawal Plan i.e. SWP. Though SWP is useful for all age categories, but for elders it can work wonders.
SWP Is Too Much Similar To PM Vaya Vandana Yojana
There are too much similarity between SWP & PM Vaya Vandana Yojana so far their functions are concerned. Almost all MF companies have SWP schemes. In this you can deposit the money just like FD. You can link SWP with any equity mutual fund scheme or debt mutual fund scheme as per your wish. But as you are retired and would not like to take equity risk, you should link your SWP with debt mutual fund. You can withdraw a fixed amount monthly, quarterly, half-yearly & yearly.
SWP Helps You To Save More Tax Than PM Vaya Vandana Yojana
Now, I am going to tell you why SWP is better than PM Vaya Vandana Yojana or FD. Suppose a retired person is in tax slab of 10% and can invest Rs. 15 lakh. If he invests this money in bank FD, he will get interest of Rs. 1.05 lakh at the rate of 7%. On this amount he will have to pay 10% tax i.e. Rs. 10,500. So his effective interest income is Rs. 94,500.
If he invests the same Rs. 15 lakh in PM Vaya Vandana Yojana, he will get Rs. 1.20 lakh at the rate of 8%. After cutting 10% tax, his effective income is 1.08 lakh.
But, if the same 15 lakh is invested in a debt fund linked SWP he will get the return in the range of 8-10% annually. Even if we assume 8% return, he will get Rs. 1.20 lakh in the end of the year. Mutual Fund company will give him that much amount after selling units. If in the beginning of the year the NAV of unit was Rs. 10, in the end of the year it will be Rs.10.80. For Rs. 1.20 lakh mutual fund company will have to sell 11,111 units. Now income tax will be paid only on the increased value of these units i.e. the short term gain. In this case the short term gain is 11,111×0.80=Rs.8,888. 10% of it will be Rs.888. And the effective income of that retired person will be 1.20 lakh- 888 i.e. Rs. 1,19,112.
(See the Calculation Below)
Head- Why SWP Is Better Than PM Vaya Vandana Yojana
Sub- Invested amount Rs. 15 lakh
Bank FD PM Vaya Vandana SWP (Debt Fund)
Return (%) 7% 8% 8%
Annual Return (Rs.) 1.05 lakh 1.20 lakh 1.20 lakh
Income Tax (10%) 10,500 12,000 888
Effective Income(Rs.) 94,500 1.08 lakh 1,19,112
Above example shows that for retired persons, the SWP is a tool to gain better return with lesser tax. If they take this plan for long term, the tax saving will be much more. And, if you link the SWP with an equity fund, he will not only save tax but he will gain much better return on his investment. So, I would advise every senior citizen to go for SWP rather than relying on PM Vaya Vandana Yojana, bank FD or Senior Citizen Savings Scheme.