SCSS Vs. PMVVY: Which is Better (2020-21)?

Senior Citizen Savings Scheme (SCSS) Or Pradhan Mantri Vaya Vandana Yojana (PMVVY). These are two popular investment options available for senior citizens of India in 2020.

While SCSS has been in existence for several years now, the other one PMVVY is a relatively new scheme. In fact recently, PMVVY got 3 year extension till March 2023.

Both the schemes have similar intent of providing predictable interest income to senior citizens. Being similar, at times it becomes confusing for retirees to choose between PMVVY Vs SCSS. That is, they are in a dilemma about which is better SCSS or PMVVY?

So let us see the major difference between PMVVY and SCSS in terms of interest rate, tenure, frequency of interest payments etc. This will help retirees to decide where to invest between SCSS or PMVVY or both!

  • SCSS stands for Senior Citizen Savings Scheme
  • PMVVY stands for Pradhan Mantri Vaya Vandana Yojana

Both PMVVY and SCSS have been designed specifically for senior citizens.

So let’s move on to the difference between Senior Citizen Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY):

  • Both PMVVY and SCSS are only available for senior citizens of age 60 and above. So that is your answer to who can invest in PMVVY and who can invest in SCSS. Also, those who have taken VRS can also buy SCSS.
  • Policy Term / Tenure (SCSS Vs. PMVVY) – The maturity period for PMVVY is 10 years. While the maturity period for SCSS is 5 years.
  • Interest Rate (PMVVY Vs SCSS) – Currently, SCSS has 7.4% return rate while PMVVY gives 7.4% per annum. But the government has said that the interest rate of PMVVY will move forward in line with the interest rate of SCSS. So this will become a non-comparable point in coming years.
  • But the interest rate on PMVVY is locked for 10 years at the time of purchase. But SCSS being part of small savings schemes, the SCSS interest rate can change every quarter.
  • Maximum Investment (PMVVY Vs. SCSS) – The maximum amount that can be invested in PMVVY is Rs 15 lac (for monthly pension option). It’s slightly lower for other pension modes (like quarterly, half-yearly, yearly) But since the upper limit of PMVVY of Rs 15 lac is per senior citizen, if both the husband and wife are senior citizens, then the family can invest Rs 30 lakhs in PMVVY. The maximum investment in SCSS is also capped at Rs 15 lac per senior citizen. One can open several SCSS but the sum total of all deposits in all SCSS accounts should not exceed Rs 15 lac for each senior citizen.
  • Minimum Investment (PMVVY Vs. SCSS) – The minimum amount that can be invested in PMVVY is Rs 1.44 lac (for annual pension option). The minimum investment in SCSS is Rs 1000.
  • Can I invest in both SCSS and PMVVY? Yes of course. In fact, if both you and spouse are over 60, then each of you can invest Rs 15 lac (maximum for both SCSS and PMVVY) in both the schemes. So in total, Rs 60 lac can be invested in these schemes by a senior citizen couple (Rs 15 lac in SCSS for Husband, Rs 15 lac in SCSS for Wife, Rs 15 lac in PMVVY for Husband, Rs 15 lac in PMVVY for Wife)
  • Interest / Pension Payout Frequency (SCSS Vs PMVVY) – PMVVY has 4 interest (pension) payout options – monthly, quarterly, semi-annually, and annual payouts. On the other hand, SCSS has only one option of quarterly payouts, i.e. at the end of months June, September, December and March. So someone who invests in both SCSS and PMVVY, he/she can set a payout structure which is a combination of various frequencies across both the schemes.
  • Maturity Benefit (PMVVY Vs SCSS) – On maturity of 10-year PMVVY, the pensioner gets the full invested amount back. No tax has to be paid on the amount. Similarly on maturity of 5-year SCSS, the SCSS account gets closed and the invested money can be withdrawn. It is also possible to extend the matured SCSS plan by another 3 years but the rate of interest will be as per the then prevailing rates and not necessarily same as the original one in the initial 5-year period.
  • Premature Closure (SCSS Vs PMVVY) – PMVVY can be prematurely closed only in exceptional circumstances like fore treatment of serious medical conditions for self or spouse. But 2% penalty has to be paid and only 98% of the invested amount will be returned. SCSS allows premature closure more easily and it’s unconditional. If pre-closed after 1 year, then 98.5% of the invested amount is returned. If after 2 years, then 99% of the invested amount is returned.
  • Death of Pensioner before Maturity (PMVVY Vs SCSS) – In case of death of the PMVVY pensioner within the policy term of 10 years, the beneficiary (a nominee or legal heirs) will get back the full invested amount.
  • Income Tax Benefits (PMVVY Vs SCSS) – No tax benefits (deductions) are available for PMVVY investors. But the contribution made to SCSS quality of for deduction under Section 80C.
  • Tax on Interest (PMVVY Vs SCSS)Interest income earned from both PMVVY and SCSS are fully taxable as per the retiree’s tax slabs and under the head of ‘Income from Other Sources’.

Both PMVVY and SCSS are very similar in intent. Few differences are obviously there. SCSS has a shorter lock-in of 5 years compared to 10 years for PMVVY. But then, that also means that there will be a reinvestment risk in SCSS to find a similar return yielding instrument at the end of 5 years. So if someone vies that after 10 years, the rates will be lower than what they are now, then PMVVY is a better choice than SCSS. Just a thought.

So that was about the comparison between SCSS and PMVVY. Now you know what are the differences in PMVVY Vs SCSS (2020). Since one retiree’s requirements may differ from another, it’s possible that PMVVY may be better suited for some while SCSS may be better suited for others. And for many senior citizens, rather than investing in any one of these two options, they can consider investing in both PMVVY and SCSS. But I must also mention here that for many retirees, it might still be a good idea to have some exposure to equity funds, even if it means having a limited exposure. This is to ensure that they are able to have some inflation-beating growth component in their retirement portfolios.

Coming back to the two government-backed saving products that carry a fixed return to meet regular income needs of senior citizens.

As mentioned earlier too, some senior citizens can also use a combination of SCSS and PMVVY i.e. using SCSS + PMVVY. In fact, one can build a sort of ladder of investments in these products to lock-in different rate of interests. That is a ladder of PMVVY and a ladder of SCSS.

How?

Let’s say you wish to deploy a total of Rs 15 lac each in SCSS and PMVVY. So one strategy can be to invest Rs 3 lac every year in SCSS (over 5 years) and Rs 5 lac every year in PMVVY (over 3 years). After 5th year, maturity proceeds from SCSS will come in every year from the 6th to 10th year. Post that, maturity proceeds from PMVVY will come in from 11th to 13th year. So every year you get interest income while starting from 6th year, you can get maturity amounts in a staggered manner from both SCSS and PMVVY. This is one simple example of building a ladder. But don’t forget that both SCSS and PMVVY aren’t very liquid (like bank fixed deposits). So make sure to keep some money even in bank FDs from a liquidity perspective even if it doesn’t give you high returns. Its also possible that some extent of equity exposure would be required or a combination of SCSS, PMVVY, PPF, Debt Funds, NPS and Equity Mutual Funds may be parts of a chosen retirement plan which has some interest income, some pension income and some SWPs from debt funds.

So that was about the comparison of Senior Citizen Savings Scheme (SCSS) Vs. Pradhan Mantri Vaya Vandana Yojana (PMVVY).

Hope you have all your questions about PMVVY Vs SCSS answered. When it comes to investment and interest income options for senior citizens in India, both PMVVY and SCSS are decent choices in spite of the difference between SCSS and PMVVY. So do consider all the benefits and difference of SCSS Vs PMVVY when investing for interest income in 2020-21.

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