Juzer GabajiwalaVentura SecuritiesVarishtha Pension Bima Yojana (VPBY) is a pension plan launched by LIC to provide a regular income to the senior citizens of the country. The salient features of the product are enumerated below:
Entry Age | 60 Yrs |
Minimum Investment (Rs.) | 66,665 |
Maximum Investment (Rs.) | 6,66,665 |
Interest Earned (p.a.) | 9-9.38% |
Payout | Monthly, quarterly, half yearly and yearly |
Lock-in | 15 Years |
Premature Withdrawal | Can be only for critical illness with penalty of 2% |
The scheme is therefore available only to senior citizens and the investor has an option to receive the pension monthly or quarterly or at other regular intervals, depending on his cash flow needs. The pension is taxable based on the income tax slab applicable to the individual investors. Moreover, there is no deduction of tax at source (TDS) and therefore, no hassle to provide form no. 15H etc. Since the scheme is promoted by the Government, there is no risk of default on the principal amount. There is however, a constraint, as the amount cannot exceed the maximum stipulated, which in today’s scenario seems to be a very small value. The limit can be used by the husband and wife separately and thereby, you can enhance the limit in that manner. Children can be added as nominees or as joint holders. Another drawback is that in the event any liquidity is required, the funds are not available, as you can only withdraw funds for critical illnesses. Thus liquidity is severely hampered.
What should a Senior Citizen do?The decision of retired individuals should be based on their cash-flow requirements and the tax bracket in which they fall.
For Senior Citizen in the 0-10% tax bracket:VPBY should be considered only if the investor wants the interest to be locked in (mainly a good scenario when interest rates are falling). However, the money is blocked for 15 years. The funds to be invested in VPBY should not be more than 25-40% of the total corpus as this would hamper liquidity.
For individuals in the 20% & 30% tax bracket:The post-tax returns for a senior citizen in this slab would not be very attractive under VPBY. VPBY should be considered only if the investor wants the interest to be locked in (mainly a good scenario when interest rates are falling). However, even though the money is blocked for 15 years it would not be a serious constraint to investors in this tax bracket.
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