Securing a monthly cash flow can be a challenge after retirement. There are several options like post office monthly income scheme, systematic withdrawal plans and monthly income plans from mutual funds. Moreover, as a part of the government’s plan to provide pension benefits, Life Insurance Corporation (LIC) of India has launched Pradhan Mantri Vaya Vandana Yojana (PMVVY).
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
The PMVVY is a pension scheme for senior citizens aged 60 years and above which will give 8% fixed rate of interest. It will be available from May 4, 2017 to May 3, 2018. If one invests Rs 7.5 lakh, the monthly pension will be Rs 5,000 for 10 years. On death of the pensioner during the policy term of 10 years, the purchase price will be paid to the beneficiary. The scheme allows for premature exit for the treatment of any critical, terminal illness of the pensioner or spouse. On such premature exit, 98% of the purchase price will be refunded. The pension will be payable during the policy term of 10 years, as per the frequency of monthly, quarterly, half-yearly, yearly chosen by the pensioner at the time of purchase. The scheme is exempted from Goods and Services Tax. One can avail loan up to 75% of purchase price after three years of the policy. The interest for the loan will be recovered from the pension installments.
Post Office Monthly Income Scheme
The five-year Post Office Monthly Income Scheme (MIS) is a popular scheme to generate assured monthly cash flow. An individual can invest Rs 4.5 lakh and a joint account holder Rs 9 lakh. The interest rate is reset every quarter by the government. At present, the interest rate on MIS is 7.5% per year and interest is paid every month. The capital is completely protected as it is backed by the government. Account can be transferred from one post office to another. Any number of accounts can be opened subject to maximum investment limit by adding balance in all accounts. Premature closing of the account is permitted with penalty. One needs to open a post-office savings account to link the monthly payout from the MIS account. The interest income is taxable but there is no tax-deducted-at-source.
Systematic withdrawal plans from mutual funds
If an investors has invested in mutual funds, then on maturity instead of withdrawing the amount in one go, can opt for systematic withdrawal. He can withdraw a fixed amount or just the capital gains on his investments. This will benefit him, especially in an upward trending market. In fact, SWP holders are able to secure higher unit prices than those who withdraw the whole amount at once. However, when the equity fund suffers sharp decline in net asset value, the investor would be withdrawing more capital and get less capital appreciation. Fund houses offer two withdrawal options for SWP. For fixed withdrawal option, the investor specifies the amount he wants to withdraw from the investment on a monthly or quarterly basis. A fixed amount can be withdrawn either on the first, 15th or the last working day of every month or quarter. In capital appreciation withdrawal, an investor can withdraw only the appreciated amount on a monthly/quarterly basis.