PMVVY Vs SCSS: Where Should I Invest?

Updated: Wednesday, January 20, 2021, 14:13 [IST]

Pradhan Mantri Vaya Vandana Yojana Or Senior Citizen Savings Scheme (SCSS) (PMVVY) the 2 major choices for investment available in India for senior citizens. In reality, PMVVY recently received an extension of 3 years until March 2023 whereas SCSS has been in operation for many years now. Both strategies have a similar objective of supporting senior citizens with stable interest income. Similarly, it often gets complicated for pensioners to choose between PMVVY and SCSS. Although the overall investment permissible under both schemes is Rs 15 lakh per scheme, the maturity period of each scheme is different. So let us differentiate the significant gap in respect of interest rate, tenure, frequency of interest payments and so on. between PMVVY and SCSS. This discerns here must give you an idea for where to park your money i.e. PMVVY, SCSS or a blend of both to secure your retirement life.

Tenure

Both PMVVY and SCSS are applicable only to senior citizens with a minimum age limit of 60 years and over. Both PMVVY and SCSS are applicable only to senior citizens with a minimum age limit of 60 years and over. So this is your guide to who can invest in SCSS and who can invest in PMVVY. Only, SCSS can also be acquired from those who have received VRS. PMVVY's maturity period is 10 years. Whereas the maturity period of SCSS is 5 years which can be further extended to a block of 3 years.

Interest rate

One has to address LIC and invest either offline or online through the official portal of LIC in order to invest in PMVVY. Investment in PMVVY can be made till March 31, 2023 and with a policy duration of 10 years you will get an interest rate of 7.4 per cent. That being said, in the instance of the SCSS, at the beginning of each quarter of the financial year, returns are set by the government. For the quarter of January to March 2021, the interest rate is kept at 7.4 per cent same as that of PMVVY. Under PMVVY the minimum pension amount is capped at Rs 1000 per month up to Rs 9250 per month. The maximum pension cap will not be met by the total amount of pension approved per senior citizen. The minimum contribution was also updated to Rs 1,5 6,658 for an annual pension of Rs 12,000 and Rs 1, 62,162 for a minimum monthly pension of Rs 1000 under PMVVY.

Maximum deposit limit

Rs 15 lac is the maximum amount that can be invested in PMVVY (for monthly pension alternative). For other pension kinds, it is marginally lower (such as quarterly, half-yearly, annually) but because the PMVVY's upper limit of Rs 15 lac is per elderly people, if both the husband and wife are senior citizens, the family can spend Rs 30 lakhs towards PMVVY. Per senior citizen, the overall investment in SCSS is also capped at Rs 15 lac. Multiple SCSS accounts can be opened, but the cumulative total of all contributions in all SCSS accounts for each senior citizen should not surpass Rs 15 lac.

Payout frequency

In general, PMVVY is a pension scheme which provides regular income on a monthly, quarterly and semi-annual and annual basis. In SCSS, having quarterly returns is the only alternative. Depending on the individual criteria, a senior citizen must decide appropriately.

Can I go for both SCSS and PMVVY?

In case you and your spouse are over 60 both of you will be entitled to spend Rs 15 lac in both strategies. In sum, a senior citizen couple with Rs 15 lac in SCSS for Husband, Rs 15 lac in SCSS for Wife, Rs 15 lac in PMVVY for Husband, Rs 15 lac in PMVVY for Wife, can spend Rs 60 lac in both the schemes.

Maturity benefit

The pensioner gets the full tax-free interest amount at the completion of the 10-year under PMVVY. Similarly, after the maturity period of 5 years one can withdraw the entire corpus from his or her SCSS account. The matured SCSS account can also be extended for another 3 years, although the interest rate will be according to the prevailing rates at the time and not exactly the same as the initial one in the initial 5-year term.

Premature exit

Only in exceptional situations PMVVY account can be closed prematurely. But in this case a penalty of 2 per cent will be charged only 98% of the invested amount will be credited back to the bank account of the subscriber. SCSS makes it possible to close prematurely any time after the date of opening the account, but no interest will be charged if the account is closed before the completion of 1 year of service. A penalty of 1.5 per cent will be deducted from the principal amount if the account is closed after 1 year but before 2 year from the date of opening. Whereas a penalty of 1 % will be deducted from the principal amount if the account is closed after 2 year but before 5 year from the date of account opening.

Taxation

For PMVVY investors, no tax benefits are eligible. But tax benefit under Section 80C is available for the contribution made to SCSS. Interest income earned from both PMVVY and SCSS is fully taxable according to the tax slabs of the senior citizen and under the category of 'Income from Other Sources'.

Our take

Instead of investing in each of these two investment alternatives a senior citizen should consider investing in both PMVVY and SCSS after making a distinction between PMVVY and SCSS. Though SCSS may be the first option, it is also possible to invest a portion of the funds in PMVVY for 10 years. There are clearly a few variations. Compared with the lock-in period of 10 years of PMVVY, SCSS has a lesser lock-in of 5 years. But again, it also implies that at the end of 5 years, there will be a reinvestment possibility in SCSS in order to pursue a comparable return-yielding player. So if anyone determines that the rate will be lower than what they are now after 10 years, then PMVVY is a safer alternative than SCSS.