Here's a great news for retirees. Now, they no more have to fret over the declining interest rate, thanks to the government's new scheme called "Senior Citizens Savings Scheme," which guarantees a fixed annual return of 9 per cent. The biggest advantage is the higher investment limit. Unlike a low limit of Rs 2.67 lakh under the Varishta Pension Bima Yojana, one can invest up to Rs 15 lakh here. However, the duration of the scheme is just five years (extendable for another three years), instead of the 15-year term of Varishta Pension Bima Yojana, which may give rise to reinvestment risk.
Any Indian citizen above age of 60 years is eligible for investing in Senior Citizens Savings Scheme. Individuals who have crossed 55 years of age can also invest in the scheme provided he has retired under a voluntary retirement scheme or a special voluntary retirement scheme on the date of making the investment.
Investments can be made in any post-office by opening an account. Only one deposit can be made in each account. The deposit amount should be in multiple of Rs 1,000 and should not exceed Rs 15 lakh. A depositor can operate more than one account subject to the condition that all the deposits taken together don't exceed Rs 15 lakh. Also more than one account shall not be opened in the same post-office during a calendar month. The depositor can hold an account either individually or jointly with his/her spouse. And the account can be transferred from one post-office to another.
The government is also planning to roll out the Senior Citizens Savings Scheme through banks in November 2004. According to banking sources, 23 banks have been designated by the RBI to distribute the scheme. While National Small Savings Organisation will be the nodal authority for the scheme, RBI will be responsible for managing banks involved in the distribution.
Though the full tenure of Senior Citizens Savings Scheme is five years, the investors have the option of premature withdrawal subject to completion of one year of the opening of account. But an amount equal to 1.5 per cent of the deposit will be deducted if redeemed after one year but before two years from the date of opening of the account. In case the investment is redeemed after the expiry of two years from the date of opening of the account, an amount equal to 1 per cent of the deposit will be deducted.
These premature penalties are too low compared to what other post office savings scheme charges. For instance, in Post Office MIS, a penalty of 5 per cent is charged if you redeem before three years. And if redeemed after three years but before maturity, you lose out the 10 per cent bonus.
The 9 per cent interest will be paid on a quarterly basis and the date of payment will be March 31, June 30, September 30 and December 31 each year. However, unlike Varishta Pension Bima Yojana, the interest income is taxable here. But the taxable nature of the new scheme is not a cause of worry for a senior citizen given the fact that income up to Rs 1.5 lakh per year is not taxable for them. Even if you invest the full 15 lakh in the scheme, the interest income will be Rs 1.35 lakh per annum, which is less than the no-tax bracket of Rs 1.5 lakh for senior citizens. Thus, this makes it a lucrative investment option ahead of the Post Office MIS, which offers 8 per cent interest (tax-free). Moreover, under Post Office MIS there is a cap of Rs 3 lakh on single account and Rs 6 lakh on joint account, but in Senior Citizens Savings Scheme, you can invest up to Rs 15 lakh. So what are you waiting for? Go get it.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
