Month: March 2021

A glance at Pradhan Mantri Vaya Vandana Yojana (PMVVY)

The LIC is the only organisation that provides PMVVY, a guaranteed pension fund. It is only available to those who have exceeded the age of 60 and ensures regular pension benefit payments on a weekly, quarterly, half-yearly, or yearly basis. PMVVY was revised and extended until March 31, 2023. With 7.4 percent interest rate the return of this scheme is the same as the post office Senior Citizen’s Savings scheme, which implies that you’ll get a 7.4% annual return for the next ten years if you invest in PMVVY before March 2021. The minimum and maximum investment caps set by PMVVY are Rs 1.56 lakh and Rs 15 lakh. The plan provides a ten-year guarantee on pension benefits, as well as a return of principal upon maturity. Beneficiaries can claim the principal if the investor dies within ten years. If you or your spouse suffers from a serious or fatal illness, you can exit early by paying a 2% penalty on the principal. Even loans are open to borrowers up to 75 per cent of the contribution under this scheme. Apart from the GST exemption on principal, the scheme has no tax advantages.

New rules under PMVVY

The lowered pension rates are the most significant change in the current updated edition. The interest rate on the investment in the adjusted PMVVY will be lower than before. Unlike the older edition of PMVVY, the interest rate in the updated PMVVY will fluctuate depending on the financial year (FY) in which the deposit has been made by the depositor. The policy lasts ten years, and the government has fixed an interest rate of 7.4 per cent, on deposits made from FY 20-21 to March 31, 2021. The government will notify the PMVVY interest rate at the start of each FY for contributions made in the next two fiscal years i.e. 2021-22 and 2022-23.

Maximum and maximum purchase price under PMVVY

The minimum and maximum pensions available under the scheme are described below:

Minimum and maximum pension benefit available under PMVVY

The minimum and maximum pension amounts available under the plan are listed below:

PMVVY vs Annuity Plans

Immediate annuity plans are sold by LIC and other insurers, and they enable you to get a lifetime pension with a lump sum purchase price. They are outperformed by the PMVVY in terms of pension payments. For example, a 60-year-old who purchases LIC’s Jeevan Akshay VII will earn an annual pension of Rs 71,210 compared to Rs 76,600 under PMVVY. He will earn Rs 54,900 under Jeevan Shanti, which allows him to delay his pension for a year. The PMVVY’s 10-year lock-in can attract those preferring liquidity more than the lifetime lock-ins of other immediate annuity plans. GST is not levied on PMVVY, but it is levied on immediate annuity plans at 1.8 per cent of the purchase price. The PMVVY, on the other hand, has certain pitfalls. Your monthly pension is reduced to Rs 9,250 owing to a cumulative contribution cap of Rs 15 lakh. For all subscribers above the age of 60, PMVVY provides the same pension amount. Pension premiums increase sharply with age in other immediate annuity policies. A 70-year-old will get a 30% higher pension under Jeevan Akshay VII than a 60-year-old with the same purchase price.

PMVVY vs SCSS

The SCSS from India Post enables seniors over 60 to deposit up to Rs 15 lakh and earn a 7.4% annual promised payout. Those over the age of 55 who have taken the VRS or who have retired can put their retirement funds in the scheme. The government changes SCSS interest rates on a quarterly basis. Initial contributions are liable for section 80C benefits, and the scheme has a 5-year lock-in duration. The interest is subject to taxation. The plan allows for early withdrawal, but there is a penalty. SCSS comes with a 5-year lock-in and can enable you to secure better rates than PMVVY. SCSS also provides premature withdrawal in case of emergency needs. The 80C benefit will assist seniors in meeting their tax-saving priorities while still maintaining a stable income. SCSS does not have a monthly pension and does not make loans available. SCSS and PMVVY earnings, on the other hand, are taxed as per your slab limit.

PMVVY vs Bank Deposits

Currently, some leading banks deliver rates of around 5 to 6 percent on one to five-year deposits and 7 to 7.5 percent is offered by small finance banks. PMVVY, on the other hand, is better than small finance banks since it is backed by the LIC and the government. You will also get fixed pension payouts for the next ten years without having to think about rate fluctuation. In the current interest climate, parking in bank deposits for up to one year will help you benefit immediately from a higher yield. However, considering the current PMVVY rate of 7.4% and leading bank deposit rates, it may take some time for deposit rates to come back on track.

Our take

A senior citizen can prefer investing in both PMVVY and SCSS after making a distinction rather than just one. Because the requirements can vary, don’t consider one to be smarter than the other. Both of these are government-backed and provide a guaranteed return to satisfy regular income requirements. PMVVY has a longer lock-in period than SCSS, but SCSS provides income tax benefits, so the decision between the two investment opportunities should be focused entirely on the investor’s needs. In addition, though a guaranteed rate of return of 7.40 per cent p.a. will be paid monthly, equating to 7.66 per cent per year over the period of ten years in PMVVY, the interest rate in SCSS is updated on a quarterly basis. After five years, the SCSS account can be extended for another three years, although the contributions in the extension duration do not gain interest. SCSS generates a tax advantage under Section 80C. That being said, under PMVVY, there is no tax gain. Some senior citizens can choose to consider a fixed deposit in a bank, as some banks give senior citizens interest rates as high as 7.75 per cent. The DICGC insures senior citizens who invest in FDs up to Rs 5 lakh in one bank.

Features of Payment Banks

1) Payments Bank has a deposit limit of up to Rs 1 lakh rupees. At no point in time should banks go over the limit. They can accept demand deposits that are, current deposits and savings bank deposits.

2) Individuals, small companies, and other organizations can make demand deposits and bank deposits.

3) Payment Banks also offer debit card facilities along with money transactions on electronic platforms such as ECS, NEFT, and RTGS.

4) They can make payments of utility bills on behalf of customers and the general public.

5) Mobile banking can be accessed through these payment banks.

Things Payment Banks are not authorized:

1) Payment banks are not authorized to open recurring deposits and fixed deposits (time deposits).

2) Payment banks cannot undertake any lending activity

3) They are not eligible to accept NRI deposits

4) Presently, cash transaction is limited to Rs 100,000 per customer.

Airtel Payment Bank

Bharti Airtel, India’s largest telecom provider, launched Airtel Payment Bank in January 2017 to support the government of India’s promised cashless revolution.

Airtel Payment Bank Features

• Individuals can open a Savings account at any branch ( 5 lakh+ banking points)
• Bank customer is eligible for a free personal accident insurance cover of Rs 1 Lac
• They can earn a 3.0% rate of interest
• The savings account offers an online debit card facility.

Benefits for merchant banking:

• QR Code Scanning
• Payment to a phone number
• BHIM UPI
• Merchant Initiated Payment.

Indian Post Payment Bank

Indian Post Payment Bank (IIPB) is backed by India’s post offices, they have a wide network of 1.55 lakh post offices and over 3 lakh employees to provide doorstep banking services.

Features of IIPB

You can open a zero balance saving account.

Your current post office savings account can be changed to a Payment bank savings account. That will result in a better interest rate. Aadhaar based Direct Benefit Transfer. The account can be opened with zero balance. Availability of funds at your doorstep, upon request and secure banking with QR card.

Fino Payment Bank

With a Fino Payment Bank Savings account, you can now ease your banking by taking advantage of the account’s multiple benefits. Fino Payment Bank Limited was founded on April 4, 2017, under the name Fino Payments Bank Limited. They have impacted the lives of over 100 million customers over the years across over 25000 touch points in 499 districts across 28 Indian states.

Features of Fino Payment Bank

• Transfer money instantly to any bank account across India.
• You can withdraw money from ATMs around the country.
• Shop at online and offline retailers with the Fino Payment Bank debit card.
• Bank customers can earn up to 6.25% per annum by opting for Sweep account facility
• The Fino branches have ICICI ATMs installed.
• Free cash deposit limit up to Rs 25,000 per month.
• Install the BPay app on your phone for easy payments.

Paytm Payment Bank

Paytm has developed a separate, unique Passcode for each of its customers to ensure the protection of their money in Paytm bank. Every month, you will usually receive 2.75 percent interest.

Features of Paytm Payment Bank

• There are no account opening fees or minimum balance requirements with Paytm Payments Bank’s Savings Account.
• Make online transactions with your free virtual card at any retailer that accepts RuPay cards.
• In Paytm Passbook, you can see your transaction and balance in real-time.
• Through the Paytm App, account holders may request a physical Debit Card.
• The bank offers a free insurance policy of up to Rs 2 lacs in the case of death or permanent complete disability.

Jio Payments Bank

The Reserve Bank of India (‘RBI’) has given Reliance Industries Limited in-principle approval to create a new Payments Bank under the Banking Regulation Act, 1949.

In November 2016, it joined forces with the State Bank of India to support the ambitious Payments bank capacity-building initiative for all Indians, and Jio Payments Bank Limited.

Features of Jio Payment Bank

• There is no minimum balance requirement for the Jio Payments Bank account.
• No debit card will be issued by Jio Payments Bank
• You can open a Jio Payment Bank account even without a Jio number
• Once you open a Jio Payment Bank account, you will get a Jio UPI to handle. You can define your own Jio UPI handle while opening your account.

NSDL Payments Bank

NSDL Jiffy is NSDL’s Payment bank, which keeps you stable, smooth, and quick transactions across your banking experience. In October 2018, NSDL Payment Bank started operations to help the initiative to provide streamlined banking services to all Indians.

Features of NSDL Payment Bank

The minimum average monthly balance to be maintained is Rs 10,000. Free virtual debit card to make online purchases. You can request a physical debit card from your NSDL Jiffy App.

Requirement to open a Payment Bank

A minimum paid-up capital of Rs 100 crores is the most significant prerequisite for establishing a payment bank. The operational promoters must own at least 40% of the venture, with the first five years locked in. The bank’s international shareholding will be controlled by the new FDI strategy.