Interest Rate SCSS: After the reduction of interest rate on PMMY and the closure of the RBI 7.75 per cent bonds, the investors banking on fixed-income investments are left with limited choices. With RBI reducing the repo rate, most banks have already reduced their fixed deposit interest rate and it has hurt the senior citizens the most. The retired investors need a regular stream of income and even some other investors look for investments that are not only safe but preferably provide monthly, quarterly or half-yearly interest income.
Here, we look at 3 such investments that fit this requirement. These are Senior Citizen Savings Scheme (SCSS), Pradhan Mantri Vaya Vandana Yojana (PMVVY) and Post Office Monthly Income Scheme (MIS). We have not considered bank FDs as most leading banks are offering low returns and also not considered post office time deposits as they offer only annual interest payouts.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
The Pradhan Mantri Vaya Vandana Yojana (PMVVY) has recently been modified and extended by the government for another three financial year till March 2023. In the Modified PMVVY for investments made in the FY 20-21 till March 31, 2021, the government has declared the interest rate of 7.4 per cent payable monthly.
PMVVY is exclusively available to those who are 60 years of age and above. The PMVVY is a pension scheme for senior citizens that comes with guaranteed returns on monthly, quarterly, half-yearly or on an annual basis for a period of 10 years. To invest in PMVVY, one has to approach LIC as it is the only authorised institution to sell this scheme.
The maximum investment that can be made in PMVVY is restricted to Rs 15 lakh per senior citizen and the maximum monthly pension in PMVVY is Rs 9,250 per senior citizen. So, if both spouses are above age 60, the maximum monthly pension can be Rs 18,500 in the family on an investment of Rs 30 lakh. The pension in PMVVY is not dependant on the age of the investor.
Post office monthly income scheme (PO MIS)
Post office monthly income scheme is for a duration of 5 years. Currently, the interest rate on Post office monthly income scheme is 6.6 per cent payable monthly. The maximum investment in Post office monthly income scheme in single name is Rs 4.5 lakh while it is Rs 9 lakh on joint name. There is no tax benefit in Post office monthly income scheme.
Senior Citizen Savings Scheme (SCSS)
In SCSS, the guaranteed return is for 5 years. SCSS can, however, be extended after maturity for 3 years but the prevailing rate of interest will apply. Currently, the interest rate on SCSS is 7.4 per cent per annum and is paid on a quarterly basis. The investment comes with tax benefit under section 80C. Only those who are above age 60 can invest in SCSS and the maximum amount in this senior citizen deposit scheme is Rs 15 lakh.
What to do
All three investments are highly safe and secure as they are backed by the government. The interest income earned from PMVVY, PO MIS and SCSS is entirely taxable in the hands of the individual. Instead of investing in only one scheme for the highest interest rate, a senior citizen may decide to diversify across these investments after keeping the regular income need, taxation and liquidity into consideration.