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Nath Balakrishnan

ONE of the more popular plans to have hit the market recently is the pension plan from LIC — Varishtha Bima Yojana. Offering a guaranteed 9 per cent return, the plan is attractive for senior citizens seeking a steady income in their post-retirement years.

Plan features

The plan is open for those aged 55 and above. Only the single-premium payment option is available under this plan. One can opt to receive the pension on a monthly, quarterly, half-yearly or annual basis. This is an immediate annuity plan and the payouts will commence depending on how one chooses to receive the pension — if one opts for the monthly pension scheme, the payout will begin a month after the premium has been paid.

The yield under this plan also is varies with the mode that one chooses to receive the pension. Under the monthly pension plan, the yield works out to 9 per cent. The yield progressively increases if one opts for the quarterly, half-yearly or the annual mode of receiving pension. The yield for the annual mode is the highest at 9.38 per cent.

Pension under the plan will be paid over the lifetime of the policyholder. Should the policyholder die during the plan's tenure, the purchase price (which is the single premium paid at the outset) will be paid to the beneficiary. An exit option is available after 15 years. Should the need for liquidity arise during the plan's tenure, one can take a loan up to 75 per cent of the purchase price after three years. The interest rate on the loan is at the discretion of the corporation and vary from time to time.

Suitability

Given the current interest rate environment and the returns offered by other fixed income instruments, the return offered by this plan is attractive. Those with funds at their disposal and who will not require liquid cash should consider investing the maximum amount permitted under the plan. Further, it will also be beneficial if one goes for this plan at an age close to the entry age specified under the plan.

Entry into the plan at a later age reduces the possibility of receiving the fixed rate of return over a longer time frame on account of mortality risk.

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