The government of a country has a duty to ensure equitable distribution of income among the country’s population and enhance the welfare of the people. Thus, every year the government introduces new policies and schemes so that society can benefit from them. This article discusses in detail everything linked to government financial institutions including government securities and explains in length some of the most popular government investment schemes.
The A-Z of Government Securities
What are government securities?
A government security is a bond or other type of debt obligation issued by the government with the promise of repayment at the maturity date. Governments, like people and businesses, require funds to function, and they tend to borrow when necessary. They do so by issuing securities. Government securities are a type of investment that the government offers at a fixed rate of interest and low risk.
What are the types of government securities?
There are various types of securities that include the following:
Treasury Bills - They are short-term securities with a maturity period that ranges from a few days to weeks. Investors gain from them as they are sold at a discounted price whereas, upon maturity, they are redeemed at the original price.
Treasury Notes - Their maturity period, longer than that of treasury bills, ranges between two to ten years in which interest is paid every six months.
Treasury Bonds - They are long-term securities with a maturity period of about 30 years where interest is paid every six months.
TIPS (Treasury inflation-protected securities) - The principal amount in these securities rises with inflation and falls with deflation and hence is protected against price volatility.
Saving bonds - They are low-risk investments and are protected against changes in interest volatility.
Why are they issued?
The key reason for the issuance of most government securities is to raise revenue for government spending. Treasury securities are issued by the central government to address budget shortfalls. State governments, on the other hand, frequently issue bonds to fund public infrastructure projects which include the building of schools, statues, museums, among others.
Another purpose of issuing securities is to keep the economy's money supply under control. The government sells government securities if it intends to curb the rate of money growth in the economy. This means it cuts down on the excess flow of money in the economy by issuing government securities instead. This way, inflation can be kept under control by slowing the expansion of money in the economy.
How are government securities sold?
In India, government securities are sold by the Reserve Bank of India is the primary market consisting of commercial banks, state, and central government, financial institutions, and insurance companies through an auction that is open for bidding. The securities can then be traded in the secondary market, which is open to both individuals and businesses.
Can Individuals buy these securities?
Individuals cannot buy these securities in the primary market when the RBI opens them the auction, but they can be bought by small investors in the secondary market at a set price based on the value of the securities. Until 2001, only banks, big financial institutions, and mutual funds were allowed to purchase government bonds, but now they are open to purchasing by ordinary investors too.
They are considered a good investment option because they generate income for a long duration of time. In comparison to other asset classes such as stock or mutual funds, the primary benefit of government securities is their safety as they are available at little or no risk and are backed by the government.
What are some popular government schemes for investment?
The Government of India offers numerous schemes for low-risk investors. The small investors who are too apprehensive to make investments in stock markets can choose the safe route of parking their money in government securities, PPF, gold bonds, among other options. The following government schemes are considered the safest investment options:
Public Provident Fund: It is the most preferred scheme for low-risk investors. Public Provident Fund is a long-term investment scheme with high interest rates and attractive returns on the amount invested. The amount invested under PPF during a year is claimed under section 80C deductions.
Government Securities: G-secs are usually debt instruments issued by the government (both central and state). Investing in them gives the investor a regular interest income. The risk factor is negligible since the investment products are backed by the Government of India and also have high market ratings. As G-secs are auctioned, RBI uses their online platform Core Banking Solution (CBS) ‘E-Kuber’ for auctions.
Sovereign Gold Bonds: Gold has always been considered a good investment option, SGBs on the other hand are the bonds issued by the Government of India and act in accordance with the market fluctuations. They are floated in the market and allow the investor to keep a check on price movement, and give a fixed interest.
National Savings Certificate: National Savings Certificate is a long-term financial investment scheme by the Government of India which can be opened with any post office branch. The scheme encourages small to mid-investors who are low-risk takers and want to save their income tax. The risk in the scheme is extremely minimal as it is backed by the Government itself.
National Pension System: National Pension System is an investment cum pension scheme by the Government of India as a security for the citizens in their old age. The scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA). The current interest rate is 8-10% on the investment made. The minimum investment required is INR 6,000 in a financial year which can be paid in installments as well.
Post Office Monthly Income Schemes: The scheme is another safe option offered by the Post offices across the country. Post Office Monthly Income Scheme is a scheme where the investor invests and earns interest after every month. It’s a low-risk scheme that also ensures a steady income for the investor. The interest rate is 6.6% up till October and is payable every month. Once the scheme has reached its maturity, the investor can choose to either withdraw the whole amount or shift it to their savings account electronically.
Each of these investment schemes has its set of advantages and limitations and should be embraced based on what benefits one is looking for. One must take an informed decision based on an interplay of various factors which include interest offered, lock-in period, and risk involved.
This article explains some of the above-mentioned schemes and additional schemes later in detail.
National Pension System
Does India have a national pension system for retirement and social security? How does it work and How to invest in it? Read ahead to find out. All these questions are addressed below.
As a part of pension sector reforms, the Government of India in 2004 introduced the National Pension System (NPS), a structured pension contribution system for retirement. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), NPS is a smart voluntary plan that enables sustainable retirement income. This government initiative aims to provide social security to all the citizens of the country.
How does it work?
NPS is a market-linked scheme managed by professionals. This means that the principal contributions made by investors during the duration of their working life accumulate until the age of retirement and after withdrawal, the growth of the remaining corpus continues via market-linked returns on the annuity plan.
The term “market-linked returns” implies that a certain proportion of the fund invested in NPS is invested in financial securities (equities & stocks) by the respective fund manager. And the individual investor would receive returns on the invested capital in proportion to fluctuations and conditions linked to the market.
In the NPS, only a certain percentage of the corpus can be withdrawn (20 percent before retirement and 60 percent after retirement). The rest of the sum is invested and the subscriber stands to receive a monthly pension post-retirement.
Other features of NPS
Types of accounts: There are two types of accounts offered under NPS- tier 1 & tier 2. Tier 1 account is the account allotted to all subscribers by default and one can choose to upgrade to access added features of a tier 2 account which include permitted withdrawals.
Low Risk: This investment is suited for individuals with a low-risk appetite. When compared to investment in other securities NPS is less risky as there is a 50 percent cap set by the government on the proportion of money that can be invested in equity.
Option to switch fund manager: One can change the fund manager of his/her portfolio if not satisfied with the performance of their pension scheme.
Tax Benefit: One can enjoy tax benefits in NPS under section 80CCD(1) of the Income Tax Act 1961. The provisions vary for a salaried professional and a non-salaried (self-employed) professional.
How to invest?
Any Indian citizen between 18-60 years of age working in either the organized or unorganized sector can invest in NPS. There are authorized entities who can collect funds from “subscribers”, and provide all other services related to NPS across India known as Points of Presence (POPs) which can also be banks appointed by PFRDA.
The process to start investing is quite simple and easy. One can go to a POP and fill a subscriber form. A few documents for KYC compliance need to be submitted and after approval, he/she can start investing through the allotted Permanent Retirement Account Number (PRAN).
Nowadays this process can even be initiated online. An individual can open an account on enps.nsdl.com and become KYC compliant by submitting documents for verification including PAN card, Aadhar card, and linking account to their mobile number.
The National Pension System is one of the pension contribution schemes introduced by the Government of India to promote social security. It is suitable for investors with a low-risk appetite. Since the invested funds are managed by professionals even individuals who are not familiar with the technicalities of financial securities can enjoy benefits.
Let’s look into another government-backed saving option- National Savings Certificates:
National Savings Certificates
National Savings Certificate is a savings bond scheme initiated by the Government of India that encourages low to middle-income investors to invest while also giving tax benefits under Section 80C of the Income Tax Act,1961. This scheme can be easily availed through any post office branch.
Who can invest in National Savings Certificates?
This scheme was rolled out primarily for individual citizens of India. Hence, it does not allow Indians residing outside India (NRIs), trusts, Hindu Undivided Families (HUFs), private and public limited companies to invest in this scheme. It can be purchased by an investor for themselves, on behalf of a minor, or in a joint account with another investor from any post office branch on submission of KYC documents (including authorized identification proof and address proof).
Initially, NSC certificates were issued physically by post offices and banks. However, as of July 1, 2016, this service has been discontinued. Now, the investors, who have a savings account with the bank or post office can buy certificates through e-mode.
What are the features of NSCs?
The investment made does not have any maximum or minimum limit and can be as low as Rs.100. The maturity period for NSC is fixed at five years. Initially, the certificate was available for a duration of 5 years (NSC VIII Issue) and 10 years (NSC IX Issue) but due to the discontinuation of the NSC IX Issue in December 2015, only the former is available for individuals to invest. It ensures a consistent income for the investor as the certificate provides an annual fixed interest. The interest rate is updated every quarter by the government.
How can one benefit from National Saving Certificates?
As NSCs are government-supported schemes, the principal invested in NSC is eligible for tax relief up to Rs.1.5 lakhs annually under Section 80C of the Income Tax Act. The NSCs can also be used to raise loans since banks and NBFCs accept NSC certificates as collateral for secured loans. In this situation, the certificate is affixed with a transfer stamp and then transferred to the bank.
How to withdraw money from NSCs after the fulfillment of their maturity period?
When the NSC reaches maturity, it can be cashed at any Post Office branch, not just the one where the account is created. You must submit an application with facts such as serial number, issuance date, complete name, registered and current address if you want to withdraw money from a branch that is not your account's home branch. Any family member (even a juvenile) can be nominated by the investor to inherit the money in the event of the investor's death.
National Savings Certificates are seen as a good investment option for middle and small investors who look forward to assured returns.
Another popular government-backed scheme is the Senior Citizen Savings Scheme (SCSS). Let’s learn more about it.
Senior Citizen Savings Scheme (SCSS)
Launched in 2004, the Senior Citizen Savings Scheme is a retirement benefits program backed by the Government of India. Those above the age of 60 (senior citizens) can invest in this scheme to avail regular flow of income. Alongside, it also offers a guaranteed interest payment which can be received on a quarterly basis.
What is the eligibility criteria for Senior Citizen Savings Scheme (SCSS)?
Those who have opted for the Voluntary Retirement Scheme (VRS) and fall under the 55-60 years age bracket can also avail of the SCSS. The retired defense personnel who are 50 and above can also avail the scheme.
How does the Senior Citizen Savings Scheme (SCSS) work?
The beneficiary can open an account under this scheme with a minimum amount of Rs. 1,000 and a maximum amount of the retirement corpus of Rs. 15,00,000, whichever of the two is lower.
If the deposited amount tends to exceed the ceiling amount, the surplus amount is immediately returned to the depositor. The account can be opened at any authorized bank or post office branch in the country.
What is the interest rate on SCMSS?
Being a government-run scheme, it delivers guaranteed returns on a quarterly basis. The present interest rate as per the first quarter of the financial year 2021-22 is 7.4% per annum. However, this interest rate is subject to change because it is reviewed quarterly. This rate is the highest offered by any fixed income small savings scheme.
What is the maturity period of SCMSS?
Currently, the maturity period of the scheme is five years, however, it is extendable by a period of another three years. This extension option can be availed only once and has to be done within a period of one year of the maturity of the account. If a person decides to withdraw before the maturity period, he/she is liable to pay a penalty.
What is the penalty for withdrawing from SCMSS before the maturity period?
The one who withdraws before the completion of two years has to pay 1.5% of the amount deposited as a penalty, and if he/she withdraws after the completion of two years then he/she will have to pay 1% of the deposited amount as a penalty.
Does SCMSS have any tax benefits?
The beneficiary can also avail tax benefits of up to Rs. 1.5 lakh under section 80C of the Income Tax Act, however, the interest is taxable. Another advantage of the scheme is that the account can be transferred within India. Besides, the process of opening an account is quite easy.
Can you get a loan against SCSS?
It must be noted that an individual cannot avail loan against SCSS like in the case of Fixed Deposit. Also, Hindu Undivided Family (HUF) cannot open an SCSS account.
What happens when an SCSS account holder dies?
If the primary account holder does before the maturity period, the account will stand to be closed. Further, all the proceeds will be transferred to the nominee (if any) or to the legal heir. To request closure of the account and to seek the proceeds, the nominee/heir is supposed to submit a written application in the prescribed format along with a death certificate.
There is no denying the fact that SCSS is safe and reliable. It is highly suitable for those with a low-risk appetite. The scheme offers a good rate of interest and enables the elderly people to earn a regular flow of income, improving their social welfare.
Public Provident Fund
A Public Provident Fund can be referred to as investment-cum-tax saving scheme. The Central Government runs the scheme and ensures guaranteed returns over the amount deposited by the investors. The amount deposited under the scheme is entitled to income tax deduction under Section 80C.
The investors need not also worry about the tax on income earned from the fund as the scheme falls under Exempt-Exempt-Exempt (EEE) category. The PPF account can be opened with any post office or a national bank or even some private banks as well. A key feature of PPF is that it can be transferred from post office to bank or vice-versa. However, it is vital to note that PPF does not allow joint or multiple account(s).
Who should Invest in a PPF?
The scheme is quite relevant for investors who want to get high returns from a low-risk investment. And investors who seek tax exemptions from their investments should consider PPF seriously as it falls under the EEE category.
What are the key features of PPF?
PPF comes with a lock-in period of 15 years. An investor cannot withdraw the amount prematurely, but those in desperate need can withdraw some amounts after seven years i.e., on completion of six years. The scheme allows withdrawal in the case of the demise of the account holder.
The interest rate for PPFs is calculated every month and added to the amount at the end of every fiscal year. The interest rates for the PPFs are decided by the Government of India after every quarter. Currently, it is 7.1% p.a. (for the quarter 1st July - 30th October 2021)
The minimum deposit required is ₹500 annually and the Maximum deposit being ₹1,50,000 in a financial year.
PPF account allows the investor to take a loan against their PPF account. The only condition which comes up is that the loan can only be taken from the start of the third year till the sixth year-end.
Nomination is allowed under PPFs account to one or more person(s). If the nomination is shared among two or more people, the division of their share needs to be specified.
The PPF account can be extended in the block of five years and filling a form named Form H.
A PPF account requires the investor to at least make a deposit once every year till the maturity of the account, i.e., 15 years
The most attractive feature of the scheme is that it is backed up by the Government of India, making the risk minimal and the capital secured.
The Public Provident Fund is the best long-term investment option for people who want to earn a steady interest for an uncertain future. One of the key features of the scheme is that it offers a good rate of interest. Even though the terms of withdrawal seem a little edgy, the revenue at the end of the maturity period is worth the wait. The scheme is definitely a safe option as it is fully backed up by the Government of India, making it an ideal investment option for investors with a low-risk appetite.
Employees’ Provident Fund online
Similar to the Public Provident Fund, the Employees’ Provident Fund is a retirement saving scheme for corporate employees. Read ahead to find out more about this.
Employee Provident Fund is a government-sponsored programme established in 1952 under the Employee Provident Fund Act, in which you and your employer each contribute a certain sum each month. Money is invested on a monthly basis, which aids in the development of a corpus for your post-retirement life. Here's all you need to know about withdrawing from EPF.
How to withdraw money from your Employees’ Provident Fund online?
In India, a fixed amount of money, 12%, is deducted from an employee’s salary every month and deposited in an EPF account along with a matched contribution by the employer. This is a retirement savings scheme, for corporate employees, mandated by the government known as the Employees’ Provident Fund. It is a collective pool of funds of all employees in a company. EPF is managed by the Employees' Provident Fund Organisation which is affiliated with the Government of India
How does EPF work?
The fund earns interest and acts as a safety net for employees to fall back on after retirement. An employee can withdraw the entire sum warranted to him/her, after retirement or after two months of being unemployed. However, after the coronavirus pandemic hit the country, the conditions for premature withdrawal have been relaxed by the government.
Partial withdrawal is allowed up to 75% in various situations such as in case of a medical emergency, higher education of children, etc. Nevertheless, withdrawals are subject to conditions and one should ensure that his/her demand meets the conditions before applying for withdrawal.
What are the steps to withdraw from your EPF account?
1. Before starting, it should be confirmed that your Universal Account Number (UAN) associated with your EPF account is activated. Aadhaar number and bank account should also be linked with UAN.
2. The first step is logging on to EPFO’s e-sewa portal using UAN & password followed by filling in the details in the online form “Claim (Form-31, 19, 10C & 10D)”. This form can be found in the online services menu. Verify the details after entering your bank account number.
3. The next step is to agree to the “Certificate of Undertaking” or the terms and conditions of making the transaction.
4. As you proceed with the option for making the claim online, you will be required to answer a few questions. The question prompt generally wants you to answer whether the withdrawal is premature. And if it is, one has to state the purpose behind the withdrawal. You would be required to submit scanned documents to substantiate your purpose
5. After entering the amount required or the amount you wish to take out, you will receive an OTP on your Aadhaar registered mobile number. After authenticating OTP, you can submit your request.
6. The status of the claim can be tracked on the portal itself. It usually takes 2-3 weeks for the request to be approved and the money to be transferred to one’s bank account.
Premature withdrawal under EPF is subject to various conditions and one must meet them to be able to receive a partial refund. In case of a financial emergency, EPF acts as a safety net and can be relied upon.
Now we have talked about some national retirement schemes, let’s dive into schemes extended by the post offices in India.
Post Office Monthly Income Scheme (POMIS)
Post Office Monthly Scheme (POMIS) is a high return scheme offered by India Post. Backed by the sovereign guarantee, POMIS is a low-risk investment providing a steady revenue stream. It has a fixed lock-in period of five years and one can either withdraw the amount or reinvest it upon maturity. Unlike other instruments such as FD, POMIS entitles the investors to earn income in the form of monthly payable interest.
For instance: Sarita invested ₹1,00,000 in POMIS, she will receive interest income on her sum monthly, at the interest rate of that particular quarter say 6.6 percent (for September 2021). This means that Sarita will receive ₹550 as interest income on her initial investment at the end of each month. After the sum matures on the completion of five years, she can withdraw her sum of ₹1,00,000 or reinvest it.
What are the features of the Post Office Monthly Income Scheme?
Safe and affordable: Since POMIS is backed by the Ministry of Finance, it is a safe investment that offers guaranteed returns. One can start with a minimum amount of ₹1,500 up to Rs. 4.5 lakh for a lock-in period of five years. In case the individual wishes to withdraw the whole amount before five years, a small penalty of 1-2% is levied.
Payout and reinvestment: The transaction of monthly interest income is hassle-free and one has the option to either collect cash from the post office or get it transferred to his/her bank account. After maturity one can choose to invest the amount in the same scheme for another five years and continue to reap the benefits. In the event of the death of the beneficiary, the claim of benefits is passed to the nominee.
Steady revenue stream: POMIS offers a steady revenue stream which, although not immune to inflation, is less risky and suitable to investors with a low-risk appetite.
Transferable: If the investor decides to migrate to any other part of India, he/she can also transfer his/her POMIS scheme to the nearest post office easily.
Joint/Minor account facility: POMIS offers a joint account facility and a parent can also open an account on behalf of his/her minor. In a joint account, the maximum amount limit is ₹9 lakh and for a minor account, the limit is ₹3 lakh.
How to invest in the Post Office Monthly Income Scheme?
Any adult Indian citizen (except NRIs) can open a POMIS account. The process is simple and a post office savings account holder can start by submitting a POMIS application form. If an individual does not have a post office savings account, he/she is required to open that before he/she can open a POMIS account.
Along with the application form, one is required to submit a copy of a few documents for verification. Signatures of witness and/or nominee on the application form are also essential on the form. After making the initial deposit and the completion of the process, the account holder can expect to receive his/her first return after the completion of one month from making the payment.
Post office Monthly Income Scheme is a flexible investment option with government backing. It offers a sustainable revenue source and is an option worth considering for people looking to invest in a low-risk alternative.
Post Office Recurring Deposit
Risk-free in nature, the Post Office Recurring Deposit (Post Office RD) is a scheme catering to the mid-term savings requiring the depositors to park their investment at least for a period of five years. The scheme required the depositors to deposit a fixed amount at regular intervals, the interest is accrued to the depositors and compounded on a quarterly basis.
How to open an account under the Post Office RD?
The beneficiary must be an Indian citizen and aged 18-years or above. Those between 10-18 years of age would need a parent or guardian to open a joint account with them. Opening a Post Office RD account is simple, you just need to submit the RD form along with a pay-in-slip with the initial deposit.
The minimum amount to open an account is set at Rs. 10 per month, and there is no cap on the maximum amount that one can deposit at fixed intervals.
What is the tenure of a Post Office RD?
The tenure of a Post Office RD is five years which is further extendable by another 5 years, making the total tenure period of 10 years. The deposits need to be made on a monthly basis beginning from the date that the account was opened on.
What is the rate of return on corpus deposited under a Post Office RD?
The present interest rate applicable to the Post Office RD is 7.2% per annum compounded quarterly. The returns on such an account can be calculated using the simple compounding interest formula.
What tax exemptions are extended under the Post Office RD scheme?
The Post Office RD scheme can be exempted from tax deduction under Section 80C of the Income Tax Act and an individual can claim up to Rs.1.5 lakh per annum, however, the interest generated is subject to tax deductions.
Depositors can also avail of a rebate facility for the investments that were made at least six months in advance. It is important to note that the rebate will only be made if the deposited amount is equal to the installments of six months.
What are the conditions for premature withdrawal under the Post Office Recurring Deposit Scheme?
Premature withdrawal can be availed only after a period of one year. The depositor can withdraw 50% of the investment after 1 year but a 1% charge will be levied on the amount being withdrawn.
The recurring deposit is viewed as an excellent measure to create a financial cushion as it inculcates the habit of saving and helps in achieving long-term financial goals.
Post Office Time Deposit (POTD)
The post office time deposit is also known as post office fixed deposit (POFD). It is similar to the fixed deposit (FD) facility of banks. This scheme is offered by the India Post. The scheme provides a guaranteed return to the depositor who deposits an amount for a fixed period of time.
How to open a POTD account?
POTD accounts can be opened by any individual who is a citizen of India. The account can be opened with either cash or cheque. The date of realization of the cheque is recorded as the opening date of the account.
The minimum amount required to open such an account is Rs. 1,000. There is no cap on the maximum limit of the amount that can be deposited. The account can also be opened jointly by a maximum of three persons. An individual can create multiple accounts without any restriction. He/she has the freedom to transfer his/her account from one post office to another within India.
What is the lock-in period of POTD?
One can lock in their money for a period of either one, two, three, or five years. The tenure can also be extended by sending a formal application to the post office.
What is the interest rate under POTD?
The interest rate under this scheme is revised regularly. It is calculated on a quarterly basis and paid on an annual basis. The latest revised rates for the POTD as per the second quarter of the financial year 2021-22, are as follows:
1 Year = 5.5%
2 Years = 5.5%
3 Years = 5.5%
5 Years = 6.7%
Is there any tax exemption one can claim for corpus under POTD?
The depositors can also claim the income tax exemptions worth Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. However, these exemptions are available only for the lock-in period of five years.
Can money locked in under POTD be withdrawn before the maturity period?
The depositor is not allowed to withdraw money within six months of the deposit. If the corpus is withdrawn prematurely between six months and 12 months, then the rate of interest offered will be the rate prescribed for a savings account.
The POTD is best suited for those who do not possess a high-risk appetite.
The government has numerous other schemes launched for the financial benefit of the society. Let’s look into two more of these schemes.
Kisan Vikas Patra
Introduced in 1998 by the India Post, the Kisan Vikas Patra is a small savings certificate scheme. The scheme helps inculcate long-term financial discipline amongst investors. The tenure of the scheme is 124 months, which is 10 years and four months.
The minimum amount to be deposited is ₹1,000, while there is no cap on the maximum limit. Initially, this scheme was meant only for farmers (Kisan) but it is now available for the public at large.
Opening an account under the Kisan Vikas Patra
Any Indian citizen aged 18 or above can avail this scheme. An adult can avail of it on behalf of a minor. In order to enroll, you will have to fill in Form-A along with identity proof to complete the Know-Your-Customer (KYC) process.
It is a government-run scheme along with multiple benefits. It is highly recommended to investors with a low-risk appetite. There are three types of certificates that are issued under this scheme:
Single Holder Type Certificate: It is issued to an adult for self or on behalf of a minor or to a minor.
Joint ‘A’ Type Certificate: It is issued jointly to two adults and is payable to both the holders jointly or to the survivor.
Joint ‘B’ Type Certificate: It is issued jointly to two adults and is payable to either of the holders or to the survivor.
What is the rate of interest for Kisan Vikas Patra?
The present rate of interest for this scheme is 6.9% after a maturity period of 124 months. If your money is locked in for this period, it will stand to get doubled. Apart from being a safe mode of investment without market risks, the interest rate is compounded annually which enables the depositor to reap higher benefits.
What are tax exemptions under Kisan Vikas Patra?
It is important to note that this scheme does not come under Section 80C tax deductions. However, once the maturity period is complete, TDS is exempted from the amount that is withdrawn. The scheme does not allow premature withdrawal except at the demise of the account holder or on the order of the court. The KVP can also be utilized as collateral to avail of a loan facility.
It is a good investment option for those who want to make a small, risk-free investment over a long period of time to earn a decent rate of interest. However, one must remember that this small savings scheme is not eligible to avail tax deductions.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Launched in 2017, Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a two-in-one pension and insurance scheme for investors above 60 years of age. PMVVY aims to provide social security to senior citizens post-retirement. It is a safe investment as it is managed by the Life Insurance Corporation of India (LIC) and is backed by sovereign guarantee.
The scheme assures pension for 10 years and is paid on a monthly, quarterly, half-yearly, or yearly basis. This policy is a great tool for financial planning for senior citizens as it offers a fixed sustainable revenue.
The pension payment that an individual receives is the interest income on the premium paid at the time of purchase of the policy referred to as the “purchase price”. This rate of pension is revised every financial year by the Ministry of Finance. The minimum purchase price to buy the policy is ₹ 1.5 lakh and the upper limit for the purchase price has been set at ₹ 15 lakh.
Due to the complex calculation process and interest income limit, the beneficiary can choose either the desired amount of pension to be received or the purchase price for which he/she wishes to buy the policy. After this, the other component is calculated automatically. This facilitates hassle-free planning.
On maturity, i.e. after completion of 10 years, the individual is entitled to receive the purchase price as a lump sum along with the last payout. Alternatively, premature withdrawal is allowed in the scheme only under extreme conditions such as a medical emergency. Under such circumstances, 98% of the purchase price (called surrender value) can be withdrawn.
How to subscribe to PMVVY?
Any senior citizen who wants to subscribe to PMVVY can do so till March 2023 by visiting the nearest LIC branch, filling the application form, and submitting it with the required documents (Aadhaar, proof of address, etc.) for verification. Similarly, the process can also be completed online by visiting the LIC website, filling the online application form, and submitting documents for proof.
If the subscriber changes his/her mind after purchasing the policy, he/she is allowed to cancel the subscription within a certain time frame known as the “free lock-in period” (30 days for online purchase and 15 days for offline purchase).
Pradhan Mantri Vaya Vandana Yojana provides a unique investment and insurance opportunity to senior citizens. It is a safe and viable option for investment. However, readers are suggested to complete their checks and weigh other options against their financial goals before investing.