Govt gift scheme has limited benefits

While insurance is cheap, returns on the fixed deposit are negligible

Festivals have become synonymous with gifts. That is probably why the government launched Pradhan Mantri Sneh Bandhan Yojana to coincide with the festival season and just ahead of Raksha Bandhan.

The scheme is in the form of a fixed deposit (FD), which can be given as a gift card. The FD is automatically linked to personal accident (PA) cover Pradhan Mantri Suraksha Bima Yojana (PMSBY) and life insurance cover - Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJY).

This address investment and risk cover, the two goals that every financial advisor wants you to take care of. While the idea behind the scheme is good, the amount is very small, say experts. The maximum cover for both PA and life insurance is Rs 2 lakh.

“The cost is very low, but as it is a government scheme, one can be sure that it is genuine. However, it needs to be marketed properly so that it can reach the right target segment,” says Malhar Majumder, partner, Positive Vibes Consulting and Advisory.

Deepali Sen, partner, Srujan Financial Advisers, also says since the basic objective of the scheme is to provide some safety net to lower financial strata of the society. “The attempt is to provide financial security in an event of death through or permanent loss of limbs or eyes. In that sense, it offers clear advantages,” she says.

It can be given as gifts by someone who employees a driver or by a factory owner to his workers, instead of cash.  “The cover of Rs 2 lakh may not seem much for a middle or upper middle class, in urban areas. But it is still useful in rural areas,” says Suresh Sadagopan, Founder Ladder7 Financial Advisories.



The scheme offers three variants of gift cards in the denominations of Rs 201, Rs 351 and Rs 5,001.

In the lowest denomination of Rs 201, Rs 24 is paid as premium for the first two years for PMSBY, which is the PA cover. The remaining Rs 177 will be invested in a term deposit for 10 years at the rate of eight per cent. The interest that is earned a year will be used to pay the subsequent premiums for the PA cover. The advantage is that the premium is unchanged for the entire tenure. While the premium for the first year is paid immediately towards the insurance, the premium for the second year is parked in a separate savings bank deposit in the name of the receiver. In the highest denomination, of Rs 5,001, Rs 684 is deducted as premium for first two years for both PA and life covers. Again the second year’s premium will be parked in a SB account in the name of the receiver. The balance amount of Rs 4,317, will be invested in a FD for either five or 10 years, at eight per cent. This will be sufficient for paying subsequent premiums at the current rate of (eight per cent) up to the date of the FD.

In case of a five-year FD, the interest earned is Rs 2,097.83 and the maturity value will be Rs 6,414.83. In case of 10-year FD, the interest earned is Rs 5,215.11 and the maturity value will be Rs 9,532.11. “In case of the third denomination, there could be tax implications in the hands of the receiver,” says Majumder.

While the idea is good, operational issues like who will pay the insurance claims and what happens in case of death of the insured need to be ironed out, he adds. The insurance is useful in the event of something untoward happens to the insured. Otherwise, the returns on the FD are negligible, since the interest is used to pay the premium, points out Sen.