Deposits, pension scheme: Investments you should make before March 31

Non-linked policies must be availed of by that deadline to earn tax-free return without cap

March 31 is the deadline for making critical investments, marking the end of the financial year. Complete investments to get benefits of products, some of which will not be available in the next financial year.

Tax-free corpus from non-linked policies

If you invest in a non-linked (traditional) insurance policy until March 31, the maturity amount received from it will be tax-free, irrespective of the premium amount. Budget 2023 proposed that the maturity proceeds from non-linked policies will be exempt only on premium of up to Rs 5 lakh from the next financial year.  

“If you are looking for guaranteed returns during retirement, a guaranteed non-linked insurance plan providing tax-free return is clearly a solution,” says Lovaii Navlakhi, board member, Association of Registered Investment Advisors (ARIA).

The alternative options have limitations such as volatility, reinvestment risk, cap on investment amount, and taxability. Also, few products, barring government bonds (which have a tenure of up to 40 years), would be able to offer a guaranteed return for beyond 20 years (returns from these bonds would, however, be taxable).  

These insurance plans can also be used to ensure a regular payout to a spouse or a child who may not be good at managing money. “There is certainly a greater merit in investing in these plans before March 31, 2023,” says Navlakhi.

Invest in PMVVY before closure

Senior citizens have about a week left to enroll for the Prime Minister Vaya Vandana Yojana (PMVVY), a government-backed pension scheme administered by the Life Insurance Corporation of India (the scheme ends on March 31). It guarantees a 7.4 per cent annual interest rate, paid out monthly. This assured rate of pension will be payable for the full tenure of 10 years for all policies purchased until March 31.

“PMVVY is a secure investment option because of its government backing. It also offers a higher interest rate compared to many other fixed-income instruments,” says Col. Sanjeev Govila (Retd), a Sebi-registered investment advisor (RIA) and chief executive officer (CEO), Hum Fauji Initiatives.

PMVVY’s shortcoming, according to Govila, is that it doesn’t offer inflation protection, which means the real value of its pension payouts will decrease over time.

Govila recommends PMVVY for senior citizens who don’t have an existing pension income and seek a guaranteed source during retirement. He considers the Senior Citizens Savings Scheme (SCSS) a better option than PMVVY. Pensioners who have the resources may subscribe to both, he suggests.

SBI Amrit Kalash Deposit

This fixed deposit scheme is open to both domestic and non-resident Indian (NRI) investors. It offers an interest rate of 7.6 per cent to senior citizens and 7.1 per cent to others for a tenure of 400 days.

“This scheme is specifically designed for senior citizens looking for a dependable source of income during retirement,” says Raj Khosla, founder and managing director, MyMoneyMantra.com.

This scheme has a potential drawback: the interest rate it offers is lower compared to other banks.

Senior citizens worried about the impact of the international banking crisis on Indian banks may go for it as it is backed by State Bank of India, a government-owned lender.

Exemption on capital gain

Long-term capital gains on equity funds and shares are tax-free up to Rs 1 lakh. The tax rate is 10 per cent without indexation on capital gain of above Rs 1 lakh. If you wish to exit certain equity investments in your portfolio, do so before March 31 so that you are able to avail of the Rs 1 lakh tax-free limit for FY2022-23.

Short-term capital gains are taxable at 15 per cent, so ensure you only sell those units that are more than a year old.

“Before undertaking this transaction, take into account costs, such as brokerage,” says Vivek Jalan, partner, Tax Connect Advisory

Top five bank FDs for one-two-year tenure
Bank	Interest rate (%)
Ujjivan Small Finance Bank	8.25
Jana Small Finance Bank	8.15
Suryoday Small Finance Bank	8.01
Bandhan Bank	8
DCB Bank	8

Note: Data taken from respective bank's website on March 17, 2023. For each year range, the maximum interest rate offered has been considered. Interest rates are for fixed deposits of amount below Rs 1 crore 

Compiled by: BankBazaar.com