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Age Needn’t Make you Wary of Investments

Author: Balwant Jain/Thursday, August 3, 2017/Categories: Cover Feature, Save, Invest, Expert View

Age Needn’t Make you Wary of Investments

As interest rates decline and costs of living rise over the past 15 years, senior citizens are hard hit for good investment options. Fixed deposits rates have come down to 6.5-7% levels. As such, aged investors are only left with avenues that fetch better returns than bank fixed deposits, while not eroding their capital. Let us examine two such schemes — the Senior Citizen Saving Scheme (SCSS), launched in 2004 and the Pradhan Mantri Vaya Vandana Yojna, launched by the Life Insurance Corporation of India in May 2017.

Senior Citizen Savings Scheme (SCSS)

Who can invest?

All individuals aged over 60 can open an SCSS account in a post office or with a bank, which is authorised to open a public provident fund (PPF) accounts. The SCSS account can be held individually or jointly with your spouse (As the amount deposited under this scheme is calculated only with reference to the first or sole holder, your spouse need not have completed 60 years for being a joint holder). One can also borrow money to invest in the scheme. However, non-resident Indians (NRIs) or person of Indian origin (PIO), cannot invest in this scheme.

As being above 60 years of age is a basic criterion, one cannot open SCSS in the name of a Hindu Undivided Family (HUF). There are age relaxations in some cases, though. Investors who have taken voluntary retirement can open an account if they are aged above 55. Similarly, age restrictions are not applicable to retired defence personnel as well.  However, for availing the relaxation of age limit you need to open the account within one month from the date of receipt of your retirement money (with proof of its disbursal with a certificate from the employer with details of your retirement period and related benefits). Moreover, you can invest your retirement corpus only. If you have exhausted it for any other purpose, then you cannot benefit from the age relaxation.

Maximum investible corpus

You can invest only a maximum of Rs 15 lakh in this scheme (this is the agreagate amount which you can invest in all the accounts taken together), while the minimum amount is Rs 1,000. You are free to open as many accounts under the scheme, however, you can deposit the amount in any account under this scheme only once subject however to the maximum amount of Rs. 15 lakhs for all accounts taken together

Also, it is not necessary that accounts be opened during a single financial year, you can do so over different years provided that the aggregate of the deposits any time does not exceed Rs 15 lakh. If you are availing of the age relaxation, the maximum amount which can be deposited under this scheme cannot exceed the retirement money (even in case it is lower than Rs 15 lakh).


Like any other bank account, you can appoint one or more nominees to receive the money in the event of your death (including joint accounts). The nominee can be appointed either when you open the account or even later. You can also cancel or modify your  nomination any number of times during the tenure of the account. However in case of a joint account, in case the first holder dies, the second holder shall be entitled to the money to the exclusion of the nominee/s. It is only that on the death of both the holders that the nominee shall become entitled to the money. Once the spouse becomes the sole holder due to death of the first holder, she shall be entitled to appoint, cancel or vary the nomination..

if nominee is the spouse only, the nominee is entitled to continue the account in her own name as long as the aggregate deposit along with her own deposit under this scheme does not exceed Rs. 15 lakh.

Tenure and premature withdrawal

An SCSS account has a tenure of five years initially, which is extendable for another three years, within one year after the date of maturity. The extension will be valid from the date of maturity and not the date of request for extension.

If you want to withdraw the money before five years, you can do so only after completion of one year and that too with a penalty. If the account is closed after one year but before completion of two years, 1.5% of the deposit is deducted. If you close the account after two years, the 1% of the amount is deducted.

As you cannot withdraw any amount before in the first year, it is advisable that you assess your financial requirements and keep aside a contingency amount. You are also not allowed to pledge or take any loan against the deposit.

Returns and taxation

You will earn quarterly interest on this scheme, as decided by the government in advance  from time to time (currently 8.4%). The payment of first interest is adjusted so as to make all the subsequent payments on a quarterly basis.

Interest earned on this scheme is fully taxable and the post office/bank will deduct tax at source at 10% if the aggregate amount of interest exceeds Rs 10,000 in a year. To avoid such deductions, submit Form 15H if you are aged above 60, or Form 15 G if you are younger. If you do not satisfy the conditions for these forms you can make a request to the income tax officer to issue you a certificate for no deduction or lower deduction of tax on such interest and the paying post office/bank will deduct the tax accordingly.

Moreover as a senior citizen, you can claim deduction of up to Rs 1.5 lakh each year under Section 80C, in respect of the SCSS deposit. This provision is significant when other avenues under Section 80 C like life insurance premium, payment towards pension plan, and contribution to PPF account, ULIPs, etc, are no longer workable or remain attractive to senior citizens.

What happens if account holder dies?

In such a case, money in a single account becomes payable to legal heirs on production of succession certificate or letter of administration along with probated will if nomination is not filed.. However, if the aggregate amount that remains in the account does not exceed Rs. 1 lakh, the same can be paid without the above documents on execution of indemnity and affidavit. In case a nomination is already filed the balance in the account is paid immediately to the nominee on production of the death certificate.

In case of a joint account, the balance in the account gets transferred to the spouse who is named as second account holder on production of death certificate. However, the aggregate amount already lying in the accounts of the spouse along with the amounts being transferred should not exceed Rs 15 lakh. In case it exceeds this threshold, the excess amount will be refunded to the joint holder immediately.


Pradhan Mantri Vaya Vandana Yojna (PMVVY)

In Budget 2017, the finance minister announced this scheme. The Life Insurance Corporation of India launched it on May 4, 2017. This scheme is available for a period of one year till May 3, 2018. The scheme guarantees senior citizens an attractive guaranteed fixed pension @ 8% for 10 years. This scheme can be purchased online as well as offline.

Who can avail this scheme?

Only eligible individuals can invest in this scheme, as it is in the form of an annuity policy (annuities cannot be availed by HUFs). As the scheme is an annuity, the amount to be invested depends upon the pension you need (ranging at Rs 1,000-5,000 per month). Accordingly, the amounts to be invested range between Rs 1.5-7.5 lakh in case of an annual annuity (see table 1 below). A family for the purpose of this scheme comprises the pensioner, his/her spouse and dependants.

Investment limits and annuities available

The PMVVY helps you to earn a good return on investment while safeguarding your capital.  It also ensures regular cash flows. This is basically a pension plan with a return on capital sum earning you an annuity of Rs 1000-5000 per month. Under the PMVYY, you have the option to receive the annuity at monthly, quarterly, half yearly or yearly interval.

Depending on payment frequency chosen by you, you need to deposit the money with Life Insurance Corporation of India (see table 1).

Table 1: Amount and frequency of payments

Frequency of payment

Purchase Price for minimum Annuity


Purchase price for maximum Annuity



Rs. 1,44,578/-

Rs. 7,22,892/-


Rs. 1,47,601/-

Rs. 7,38,007/-


Rs. 1,49,068/-

Rs. 7,45,342/-


Rs. 1,50,000/-

Rs. 7,50,000/-




Premature withdrawals and withdrawal on maturity

You are normally not allowed to withdraw the purchase price paid before completion of 10 years. However, in exceptional circumstances like for treatment of terminal illness or critical illness of the spouse or self, you are allowed to withdraw the money but you will get only 98% of the purchase price in in such a case. However on completion of the term of 10 years you will get back the full price which is not taxable in your hand at the time of the receipt.

Loan against the purchase price

The PMVVY allows you to take loans of up to 75% of the purchase price after completion of three years from commencement of the policy. The rate of interest applicable on such loans will be declared from time to time (10% payable half yearly in 2017-18). The amount of interest shall be recovered from the pension amount due to you. The amount of loan if not repaid earlier shall be adjusted against the principal amount payable either at the time of maturity or at the time of premature withdrawal.


Please note that unlike the Senior Citizen Savings Scheme where you get the tax benefit for deposits made, no tax benefits are available at the time of making the investments under this scheme. Moreover, annuity received is taxable at the slab rate applicable to you. The ceiling of maximum pension is for the family as a whole i.e. total amount of pension under all policies allowed to a family under this plan shall not exceed the maximum pension limit.

Hybrid products

As returns offered by regular debt instruments are just sufficient enough to meet inflation and sometime not even sufficient enough to meet the broader inflation (especially considering inflation connected with medical expenses, which is a major component for senior citizens), it is advisable that senior citizens invest the corpus left over (after exhausting the SCSS and PMVVY limits) in monthly income plans/ balanced funds. Depending on your risk profile, you choose either — in monthly income plans, around 15% of the money is invested in equity, whereas in balanced funds, not less than 65% of the corpus is invested in equity (but all these deserve a mention in a separate article).

I am sure this discussion will help you in better organising your savings and earning decent returns.

The author is a CA, CS and CFPCM and is presently the Company Secretary of Bombay Oxygen Corporation Limited.

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Balwant Jain
Balwant Jain

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