How senior citizens can make the most from a portfolio of SCSS & PMVVY schemes?

The two most well-liked government-backed initiatives for elderly adults during the prevailing interest rate regime are the Senior Citizen Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY). The Finance Minister Nirmala said on February 1, 2023, during the presentation of the Union Budget, that the Senior Citizens Savings Scheme's maximum deposit limit will increase from Rs. 15 lakh to Rs. 30 lakh effective from 1 April 2023 or FY24. In comparison to popular bank fixed deposits (FDs), such as those offered by SBI, HDFC, ICICI, Axis Bank, Bank of Baroda, PNB, and others amid the current rise of interest rate trend, the latest interest rate for the SCSS plan is 8%. 

On the other hand, the PMVVY scheme would offer a guaranteed pension of 7.40% p.a. payable monthly for the financial year 2022–23. This assured rate of pension shall be payable for the full policy term of 10 years for all policies purchased up to March 31, 2023. The programme is scheduled to end on March 31, 2023, and will not be accessible starting on April 1 or FY24 unless the government announces an extension. Let's hear from experts on how elderly individuals over 60 looking for government-backed regular income with inflation-beating and risk-free returns, like PMVVY and SCSS, may the most from these two schemes invested through a single portfolio.

Harsh Gahlaut, CEO, FinEdge

In the recent Union Budget, we saw the limit for SCSS being doubled from 15 lakhs to 30 lakhs. However, senior citizens should not be in a hurry to rush into government backed schemes with their post-retirement savings as they represent a sub-optimal solution. First, although both PMVVY and SCSS offer an FD-plus return of 8% now, returns are fully taxable at the margin. Second, there’s a hard lock-in on the invested amount for 5 years (10 years for PMVVY). As a senior citizen, three things matter – access to capital during events such as medical emergencies, tax efficient income, and inflation beating capital growth. Unfortunately, government schemes like SCSS and PMVVY do not check any of the three boxes.

We believe that a well-designed portfolio comprising of debt and equity mutual funds, coupled with a smart SWP (Systematic Withdrawal Plan) strategy represents a far better solution to all the three problems outlined above. With lifespans going up and the risk of outliving one’s capital becoming real, senior citizens can no longer afford to adopt a completely risk-averse approach and ignore the wealth creation potential of equities. Depending upon their unique situation, we now actually advise retirees to invest anything from 15% to 40% of their retirement funds into equities, while deploying the rest through a judicious mix of TMF’s, liquid funds, medium duration debt funds and even longer duration debt funds with an SWP strategy built in to pay them a “monthly salary”.

Abhinav Angirish- Founder, Investonline.in

There was some good news for the elderly in the budget. Nirmala Sitharaman, has increased the investment limit for the Senior Citizens Savings Scheme (SCSS) to ₹30 lakh from ₹15 lakh and the investment limit for the Post Office Monthly Income Scheme (POMIS) to ₹9 lakh. For people over 60 looking for a government-backed regular income with nearly risk-free returns, the two schemes—SCSS and PMVVY—are fairly good choices. But the PMVVY scheme is set to expire in March 2023 as the government has decided to discontinue the same. The good news is that the government has increased the cap of the Senior Citizens Savings Scheme (SCSS).

Nevertheless, the truth is that solely debt-based strategies cannot outperform inflation over the long run. Because of this, it is recommended to allocate some of one's retirement savings to equity investments. It doesn't have to be a huge chunk of your portfolio; anything from 25% to 40% equity exposure might be considered based on the size of the corpus, risk tolerance, and income needs.

This will ensure that at least some portion of the corpus increases at a rate that is faster than the rate of inflation. It is recommended for retirees to invest in equity-related products including large-cap index funds, flexi-cap funds, and aggressive hybrid funds.

Yash Joshi, Co-Founder and Director UpperCrust Wealth Pvt. ltd

Senior citizens can make the most of the Senior Citizen Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY) by considering the following points:

Invest in SCSS and PMVVY: Senior citizens who are looking for a secure and guaranteed source of income should consider investing in SCSS and PMVVY. Both these schemes are specifically designed for senior citizens and offer higher interest rates than other fixed-income investment options.

Know the eligibility criteria: To invest in SCSS, an individual must be 60 years or older. In the case of PMVVY, the minimum age is 60 years, and there is no maximum age limit. Both schemes are available to Indian citizens and NRIs.

Know the investment limits: The maximum investment limit in SCSS is Rs. 15 lakhs, while in PMVVY, it is Rs. 15 lakhs. Senior citizens should consider investing in both these schemes to maximize their returns.

Consider the tenure: SCSS has a tenure of 5 years, which can be extended for another 3 years. PMVVY has a tenure of 10 years. Senior citizens should consider the tenure of both these schemes while investing.

Know the interest rates: The interest rates for SCSS and PMVVY are fixed and revised quarterly. Currently, the interest rate for SCSS is 7.4%, while for PMVVY, it is 7.4% per annum.

Tax benefits: The investment made in SCSS is eligible for a tax deduction under Section 80C of the Income Tax Act. The interest earned on SCSS is taxable. In the case of PMVVY, the interest earned is taxable.

Reinvest the returns: Senior citizens can reinvest the returns earned from SCSS and PMVVY to maximize their returns. The reinvestment option is available in SCSS, and senior citizens can invest the maturity amount in PMVVY to earn a higher return.

In summary, senior citizens can make the most of SCSS and PMVVY by considering the eligibility criteria, investment limits, tenure, interest rates, tax benefits, and reinvestment options. Senior citizens should consult with a financial advisor before investing in any scheme to determine the best investment option for their specific situation.

Sagar Lele, WealthBasket Curator and Founder of Rupeeting

Both SCSS and PMVVY are extremely attractive schemes given their high returns, guaranteed regular income and sovereign backing - perfect for people looking to generate steady returns over their retirement.

A rate of 8% on SCSS and 7.4% on PMVVY can be locked in for the next 5 and 10 years respectively if one were to invest before March 31, 2023. Starting April 1, 2023, while the opportunity doubles down on SCSS with its upper limit going form Rs. 15 lakh to Rs. 30 lakh, that on PMVVY will cease to exist unless the government further extends the scheme.

One can make the most of these schemes by investing Rs. 15 lakh each in SCSS and PMVVY now, and making an additional investment of Rs. 15 lakh in SCSS after April 1, 2023. Together, at current rates, these would yield Rs. 3.5 lakh annually, while also returning the invested amount at maturity.

Additionally, a couple could open individual accounts and double up their investment rather than opening a single joint account, giving them the ability to invest a larger sum.

Prashant Gupta, Founder & CEO, Caerus3 Advisors, and Think-Tank

The investment limit in the Senior Citizens Savings Scheme has increased from ₹15 lakhs to ₹30 lakhs in this year's budget, which was a boon to senior citizens. Senior citizens can also invest ₹15 lakhs in the Pradhan Mantri Vaya Vandana Yojana (PMVVY), but only until March 31, 2023, after which it will be phased out. By investing the highest amount permitted, senior citizens can benefit the most from these programmes. 

With the current SCSS interest rate of 8% annually, they can invest Rs. 15 lakhs and receive a yearly interest income of Rs. 1.2 lakh for a period of five years. Similarly to that, the current PMVVY pension rate is 7.4% annually, which equals Rs. 1.11 lakh in income. Since that PMVVY has a 10-year term, the investor is guaranteed to get Rs. 1.11 lakh annually for 10 years. Under these programmes, senior citizens will be able to earn a total of ₹2.31 lakhs each year.

Nirav Karkera, Head of Research, Fisdom

SCSS and PMVVY are both great investment opportunities backed by the government. While both offer tax benefits, if one were to prioritise a lower lock-in and higher returns, SCSS must clearly be preferred. However, at this very point in time, senior citizens can also look at straightforward bank fixed deposits that are currently offering attractive returns even as many banks offer senior citizens additional interest.

Ashwini Kapila, Managing Director, GetSetUp India

As one retires, an individual’s steady monthly salary comes to a halt. Therefore the income sources get limited to the returns from investments made throughout the working life and from the retirement corpus that one receives as one superannuates. This corpus then becomes the principal investment, for a stream of income that a retiree would want to receive. 

These schemes have strong features, that are attractive for Older Adults to park their retirement corpus. The schemes, being backed by the Govt, are safe; Provide a reasonable return and most importantly for a retiree, provide the option for periodically regular cash flows. My own father, a retired defence personnel has regularly been using the benefits of these schemes for his own corpus.

Vishal Vij, Founder and Managing Partner at Nestegg

Both options are for senior citizens aged 60 years and above to generate risk-free income. SCSS is a risk-free Fixed deposit (for 5 years, extendable by 3 years) whereas PMVVY is a pension scheme by LIC for a duration of 10 years. Current, budget hiked the max investment limit for SCSS to 30 lacs from the current 15 lacs (starting 1st April 2023), whereas PMVVY is likely to end on 31st March 2023 (unless extended by the govt). Senior citizens seeking risk free, predictable and govt backed regular income on their retirement corpus could choose these instruments. PMVVY can only be bought through LIC until 31st March 2023."

Both of these options are intended for senior citizens who are 60 years of age or older and are looking to generate a secure and predictable source of income. The Senior Citizen Savings Scheme (SCSS) is a fixed deposit that is risk-free for a period of 5 years, with the option to extend for an additional 3 years. In contrast, the Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension scheme offered by LIC that lasts for 10 years. 

The recent budget has raised the maximum investment limit for SCSS to 30 lakhs from the current 15 lakhs, effective from April 1st, 2023. However, PMVVY is set to expire on March 31st, 2023, unless extended by the government. These instruments are suitable for senior citizens who want to secure regular, government-backed income for their retirement corpus. It is important to note that PMVVY can only be purchased through LIC until March 31st, 2023.

Ashok Chhajer As the CMD of Arihant Superstructures Ltd

Would suggest that Senior Citizens should utilise the full limit of SCSS to avail of 8% interest though banks may offer better rates in the next few months but that could be for a shorter duration. PMVVY Scheme rates are lower, thus could be avoided.