Government Doubles PMVVY Limit
Senior citizens can breathe a small sigh of relief - the LIC led PMVVY (Pradhan Mantri Vaya Vandana Yojana) limit has now been doubled from 7.5 Lakhs to 15 Lakhs.
The PMVVY, administered by LIC, is a sovereign guaranteed scheme that provide Senior Citizens with a yield of 8% to 8.3% on their investment for a period of 10 years, depending upon the payout frequency selected (a higher payout frequency correlates with a lower return, and vice cersa).
The difference between the returns generated by the fund, and the actual payouts made by the scheme to retirees, is to be borne by the government as a subsidy. Over 2.23 Lakh senior citizens have signed up for the scheme thus far.
The government has also pushed the closing date for the scheme by two years - it was previously due to terminate today (3rd May '18).
I had written about the PMVVY during its launch last year in this article: Is The Recently Launched PMVVY A Go Or A No-Go?, in which I had mentioned the positives and drawbacks of the product. One of the clear negatives that came up (besides the tax inefficiency) was the fact that the monthly income generatable from the product was capped at an inconsequential Rs. 5,000. At Rs. 10,000 per month - its still not a game changer, but it's a lot better than the previous limit.
If you're a senior citizen, should you consider locking away Rs 15 Lakhs into the PMVVY in pursuit of a guaranteed stream of retirement income? There's no reason why you shouldn't. Given the recent performance of comparable investment avenues such as debt mutual funds, it may actually make sense to have a certain portion of your monthly income flowing in from a sovereign backed scheme.
Since this isn't an annuity for life, you'll always have the option to re-deploy the funds elsewhere when the scheme matures. Standard annuity plans typically offer no such option - once you've annuitized your money, there's no turning back.
Combining the PMVVY with SWP's (Systematic Withdrawal Plans) of debt oriented Mutual Funds can offer senior citizens with an optimal balance of stability, tax efficiency, and yield. Just make sure you're absolutely sure that you won't need this money for the next 10 years, as the PMVVY offers restricted exit options that kick in only in the event of a critical illness for you or your spouse.
