LIC Varishtha Pension Bima Yojana: Not the best option for retired folk

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LIC Varishtha Pension Bima Yojana: Not the best option for retired folk
Finance Minister Arun Jaitley recently announced the launch of LIC Varishtha Pension Bima Yojana (VPBY), where the beneficiary gets a monthly income of 9 per cent that is paid every month, pushing the yield to 9.38 per cent every year.

Details of the scheme

a) Opening and closing

The scheme would run from August 15, 2014 until August 15, 2014.

b) Age requirements

If you are under 60 years of age, you are not permitted to invest in the scheme. The scheme would be for those over 60 years and above.

c) Payment period

The Pension payable would be on monthly, quarterly, half-yearly or annual mode.

d) Loan

One can avail a loan at 75 per cent only after three years of commencement.

e) Nominee

On death of the individual the amounts would be paid to the nominee.

Should one invest?

An interest rate of 9 per cent monthly is competitive, but, not the best rate around. You can get better yields from bank and quality company deposits. For example, Kerala Transport Development Finance Corporation offers a yield of as high as 11 per cent under its quarterly plans. Again, the deposits are very safe, since they are backed by the Government of Kerala.
The one advantage that LIC Varishtha Pension Bima Yojana would have is that you are guaranteed returns of 9 per cent per month for the next 15 years. So, you would gain if interest rates fall, but, would lose money if interest rates on deposits rise.

Again, the lock-in period of 15 years is not the best option, for a senior citizen. You can withdraw money only in case of a medical emergency. Also, the amount is taxable thus ensuring that it is not the best option around.

Here is a quick look at the disadvantages

1) Not the highest interest rates around.
2) Highly illiquid in case of emergency.
3) No tax benefits.


You can partially invest in the Scheme, while investing a part of your money in highly liquid schemes. Probably, you can look at strong bank fixed deposits that are willing to give you a quarterly interest rates. At least your money would be liquid and you could close the deposits at your will.

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