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Is Varishtha Pension Bima Yojana (VPBY) a good investment option?

 

Entry Age: The pension is not for youngsters, So the minimum entry age for this scheme of Life Insurance Corporation (LIC) is 60 years. Those who are 60 years old can contribute to this scheme on or before 14th August 2015.

Payment: Obtaining this policy is very simple. The eligible investors can pay lump sum money of Rs.666665 (the minimum is Rs.66665) and start getting the pension from the very next month.

Interest: The interest on this scheme is 9% per annum. However in the first year at the time of obtaining the policy, one has to pay 3.09% as Service Tax. So, for the first year, the net effective rate of interest rate is less than 6%. From the subsequent year, it will be 9%

Tenure: The policy is for a period of 15 years. In case of critical illness the policy holder can surrender the policy before the tenure with a surrender value of 98%. One can also take loan up to 75% of the value of the policy on completion of initial 3 years.

Taxes: Income tax is applicable on the pension. So, this is the issue. Had the pension been exempt from tax; this would have been one of the best rated retirement schemes. Unfortunately, the pension is taxable like Bank Interest. In effect, there won’t be any great financial benefit for the person taking this policy

Than what is the benefit of this policy? Why is LIC giving large advertisements?

The only benefit which I foresee is the continuity of the return at 9% for the next 15 years. After the change of government at the centre, all of us do believe that the economy of India will grow in medium to long term. In case of growing economy, the bank interest rates on deposits will usually comes down. Today, the deposit rates for senior citizens are over 9% per year. But over the next couple of years, there is every chance of interest rate heading south.

 

So, for protecting the rate of return (at 9%) consistently for the next 15 years, one can invest in this scheme.

 

  Read Also :  Another option of retirement Investment plan- Read about National Pension System (NPS)

 

 

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About CA Prasad Chartered Accountant

CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]