As the interest rates of fixed deposits are now record low, individuals are searching for other debt investment strategies that offer high-interest rates and give assured returns. Senior citizens who want to enjoy a financially comfortable, prosperous life are seeking to participate in an alternative that promises assured returns that will be inflation-beating. Three of the many alternatives open to senior citizens are small savings strategies like the Senior Citizen Savings Scheme (SCSS), Pradhan Mantri Vaya Vandana Yojana (PMVVY) and the Post Office Monthly Income Scheme (POMIS).
Senior Citizen Savings Scheme (SCSS)
A limit of Rs 15 lakh can be invested in SCSS at multiples of Rs 1,000. Every quarter, interest in this scheme is due and thus can be used as a regular income for senior citizens after retirement. SCSS account comes with a maturity period of 5 years which further can be extended to a block of three years. SCSS is now promising a rate of 7.4 per cent for the quarter of January to March 2021, far more than any other fixed-return scheme available for senior citizens, considering a substantial decline in the interest rates of small savings schemes.
Post Office Monthly Income Scheme
POMIS is a strong choice for senior citizens who are trying to get a stable income. The scheme currently provides an interest of 6.60 per cent. Though Rs 1,000 is the minimum investment required, the limit is Rs 4.5 lakh for a single account and Rs 9 lakh for joint. You need to open a savings account at the same post office branch that you opened a POMIS account in order to open a POMIS account so that the monthly interest can be transferred straight to your savings account and can be withdrawn monthly. The scheme has a maturity period of five years, but after 1 year, a premature withdrawal alternative is open. But it will trigger up to a 2 per cent penalty. Interest received by POMIS is subject to taxation respectively.
Pradhan Mantri Vaya Vandana Yojana
PMVVY is a government-subsidized, non-linked, non-participating plan. You can buy the scheme both offline and online from LIC of India at www.licindia.in. The policy period is 10 years and the plan will have a guaranteed rate of return of 7.40% p.a. for policies offered for the financial year, i.e. up to 31 March 2023. For plans sold over the next two financial years, the applicable fixed interest rate at which pension contributions are to be made will be updated and determined by the Ministry of Finance at the beginning of each financial year. Based on the amount invested in the scheme, senior citizens will receive a minimum pension of Rs 1,000 per month. The total amount of pension is limited to Rs 10,000 a month. Under all the policies under this scheme and all the policies taken under previous iterations of the PMVVY, the maximum value of the purchasing price given to the senior citizen shall not surpass Rs. 15 lakh.
At 7.40 per cent, the interest rate for SCSS and PMVVY is the same, whereas the POMIS interest rate is 6.6 per cent. Well, the first choice must be SCSS and PMVVY and then POMIS. Opposed to SCSS, PMVVY has a lengthy lock-in period and, on the other hand, SCSS provides income tax advantages, so the decision between the two investment alternatives depends entirely on the investor's preferences. The interest of 7.4% under PMVVY is payable on a monthly basis for the complete maturity period of 10 years whereas the interest rate of SCSS is updated on a quarterly basis. Under Section 80C of the Income Tax Act, you get a tax benefit under SCSS if compared to PMVVY but interest received by POMIS is subject to tax. Under both SCSS and PMVVY you can invest up to a limit of Rs 15 lakh individually or jointly. Both the Senior Citizen Savings Scheme and PMVVY can be taken into consideration. Despite the low-interest rate, POMIS can be excluded. As some banks give interest rates up to 8 per cent to senior citizens, some senior citizens can also prefer fixed deposits in such a bank. As FDs of up to Rs 5 lakh in one bank are covered under DICGC. Thus, investors can invest up to Rs. 5 lakh in one bank, ideally.