Which is a better investment plan for my parents to get return every month

You have not provided sufficient details in your query. We will try to provide you some broad guidance in our response, but you should think about the needs of your family carefully and discuss with a financial advisor to make the best decision. The first question you should ask yourself is whether your parents need life insurance cover or monthly income from investment. They may need both, but you should remember that those are two separate needs and it should be treated as such.

Firstly, let us address life insurance. If your parents are retired and are dependent on you for their financial needs, then you should definitely consider buying adequate life insurance for yourself and include your parents as nominees, so that in the event of an untimely death the financial needs of your parents are taken care of. We, in Advisorkhoj, think that Term plans are straightforward protection plans and are in the best interest of the insurance buyer (please see our article, Why are non term life insurance plans detrimental to your financial needs).

Let us now come to monthly income for your parents. There are a variety of options available, but endowment plan is probably not the suitable option for them. Why? Let us understand how endowment plans work. Endowment Plan is one of the most popular forms of life insurance in India. The insurance buyers pays premium and gets life cover or sum assured. In the event of an unfortunate death, the nominees of the insurance buyers get the sum assured from the life insurance company. In addition to the life cover, an endowment life insurance plan declares bonus every year. However, the bonus is payable only on the completion of the policy term. Since your parents are senior citizens, they may the need the income right now instead of waiting till the end of the policy term of an endowment plan. Here are some of the options you can consider, instead of an endowment plan:-

1. Senior Citizen Savings Scheme: This is one of best investment schemes for Senior Citizen. The interest rate on this investment is 9.2%. The scheme allows for an investment upto Rs 15 lakhs and the investor receives interest on a quarterly basis. The maturity of the scheme is 5 years, extendable by another 3 years. The SCSS offers liquidity to the seniors, by allowing premature withdrawals (however charges of 1.5% and 1% deductions in interest apply for closure after 1 and 2 years respectively).


2. Post Office Monthly Income Scheme: This is one of the most popular schemes for senior citizens who want monthly payment. The interest rate on this investment is 8.4%, payable monthly. Account can be opened by cash or cheque. The maturity period is 5 years. There is a possibility that Post Office savings scheme rates may be revised downwards from April. Therefore you may want to invest before April, if you want to lock in current interest rates.


3. Varistha Pension Bima Yojana: This scheme for senior citizens is run by LIC. The interest rate offered by Varistha Pension Bima Yojana scheme is the highest among all the annuity plans offered by different life insurance companies. It is an immediate annuity plan offering an interest rate of 9.38% to senior citizens, whereas the Kotak, ICICI Prudential and HDFC Life plans, which are the next best plans offer only about 7.3 – 7.6% . LIC is offering more as the scheme is sponsored by the government. Compared to Senior Citizens Savings Scheme and Post Office Monthly Income Scheme, the Varistha Pension Bima Yojana offers higher interest rate. However, there is a disadvantage in investing in Varistha Pension Bima Yojana compared to Senior Citizen Investment Scheme and Post Office Monthly deposit. The liquidity of Varistha Pension Bima Yojana is very low compared to Senior Citizen Savings Scheme and Post Office Monthly MIS. Whereas the maturities of Senior Citizens Savings Scheme and Post Office Monthly Income Scheme are 5 years, LIC allows your parents to surrender Varistha Pension Bima Yojana only after 15 years. Your parents can also surrender the policy before 15 years, if they need money for treatment of critical illnesses of self or spouse by paying a 2% surrender fee. A loan, of not more than 75% of the premium, is also offered after completion of three policy years of the LIC Varistha Pension Bima Yojana. The lack of liquidity is a major concern for Varistha Pension Bima Yojana, but if you can take care of your parent’s liquidity needs like medical and other expenses, as and when they arise, this might be a good scheme for them.


4. Other Immediate annuity products (e.g. LIC Jeevan Akshay VI): There are other immediate annuity products which offer a variety of options which can give the insurance buyer to choose a plan which is suitable for their needs. For example, your parents can buy an LIC Jeevan Akshay VI plan with the option to receive annuity payments at the rate of 9.35% for life. But if the insurance buyer dies, your other parent will stop receiving annuity payments. Your parents can buy another option where they receive annuity payments at a certain rate for a number of years, whether the insurance buyer is alive or not. There is another option, where in addition to annuity payments during the lifetime of the insurance buyer, LIC will also pay the purchase price of the policy on the death of the insurance buyer. There are a variety of other options, but remember there is no free lunch. The more flexibility you have, lower is the annuity interest rate.

We have not mentioned mutual fund plans, since it seems from your query that you prefer risk free products. However, if you have the appetite for some volatility, then mutual fund monthly income plans can also be good investment options. You should discuss with your financial advisor, which is the best investment option for you and decide accordingly.