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Saving Scheme

Best Saving Plan

Last Updated 31st Oct 2020

Savings Scheme Rate Interest Interest Taxable
Public Provident Fund 7.10 % Tax Free
National Savings Certificate 6.80% Yes
Senior Citizen Savings Scheme 7.40% Yes
Sukanya Samriddhi Yojana 7.60 % Tax Free
Kisan Vikas Patra 6.90% Yes

    What is a Saving Scheme?

    A saving scheme is an investment option which instils a habit of savings through small and regular deposits. It prepares us financially for unforeseen personal and medical emergencies and also serves as an additional source of income to meet your personal aspirations and that of your family’s such as child’s higher education and marriage, etc. Savings Schemes provided by government, banks or post offices vary in their interest rates, horizons and tax treatments.

    Unit Linked Insurance Plan (ULIP)

    A Unit Linked Insurance Plan is an integrated plan which offers investors insurance cover along with the investment under the same plan. The insurance company invests a part of the money invested in Unit Linked Insurance Plan towards the life insurance cover, and the remaining portion is invested in debt/equity funds.

    • The tenure of Unit Linked Insurance Plan ranges between 5 years and 20 years and is different for different insurance companies.
    • You need to invest a minimum of ₹ 2,500 in a Unit Linked Insurance Plan. There is no limit for maximum investment in a ULIP.
    • Investors can get tax exemptions upto ₹ 1.50 Lakh during a year under Sec 80C of the Income Tax Act. Further, the amount received on maturity is also exempted from taxes under Section 10(10D).
    • The rate of returns of ULIP is not fixed and depends on fund performance.

    Equity Linked Savings Scheme (ELSS)

    ELSS or Equity Linked Savings Scheme is also known as tax saving funds. It is a form of mutual fund that has a compulsory lock-in period of three years. It is the only mutual fund that allows tax deductions upto ₹ 1.50 Lakh in a financial year under Sec 80C of the Income Tax Act.

    • Equity Linked Savings Scheme is the tax-saving investment scheme with the lowest lock-in period. However, there is no maximum tenure for investment.
    • Income earned from the Equity Linked Savings Scheme is known as Long-term capital gains and is taxed as per the Income Tax Slab Rate.
    • Investors can invest as low as ₹ 500 in Equity Linked Savings Scheme.
    • The returns on ELSS are determined by the market rates and depend on performance of funds.

    Government Savings Schemes

    The saving schemes backed by the government are reliable, have low risk and are secure. There are various Saving Schemes launched by the government that are mostly known for providing long-term benefits, attractive interest rates and also provide tax exemptions on investment. Some of the popular government-backed investment Schemes are listed below.

    Public Provident Fund (PPF)

    Public Provident Funds are one of the most popular retirement benefit schemes aimed at encouraging the habit of savings for the long run.

    • To invest in a PPF scheme, you need to deposit a minimum of ₹ 500 in a financial year in your account. The maximum limit of investing in PPF accounts is ₹ 1.50 Lakh in a fiscal year.
    • The lock-in period of investing in PPF accounts is 15 years. However, you can extend the term in a batch of 5 years.
    • The rate of returns on the Public Provident Fund is determined by the Finance ministry every quarter. The PPF account interest rate was revised recently on 1st October, 2020, and it stands at 7.10%.
    • The amount invested, interest earned, and the amount one gets after the PPF maturity is tax-free. Under Sec 80C of the Income Tax Act, investors can get tax exemptions upto ₹ 1.50 Lakh in a financial year.

    Atal Pension Yojana (APY)

    Atal Pension Yojana is a pension scheme launched to cater to the financial needs of individuals in the unorganised sector. Under this scheme, the individuals can opt to get a pension of ₹ 1000, 2000, 3000, 4000 and 5000 after the age of 60 years according to the amount invested in the pension scheme.

    • Anyone between the age of 18 years and 40 years can invest their funds in Atal Pension Yojana.
    • The amount of investment varies as per the age and pension amount one wishes to receive after the maturity period. If an individual is opening an account at the age of 18 years, then he needs to make a minimum investment of ₹ 42.
    • Under Sec 80CCD, you can claim tax deductions upto ₹ 2 Lakh on your investments.

    National Savings Certificates (NSC)

    National Savings Certificates is a fixed investment scheme that can be opened at the post office to get guaranteed returns along with tax exemptions on investment. Key features of the National Savings Certificate scheme is mentioned below.

    • The minimum amount required to invest in NSC is ₹ 100. There is no cap on the maximum amount that one can invest in National Savings Certificates.
    • The tenure of investment for a National Savings Certificate is 5 years.
    • Under Sec 80C of the Income Tax Act, you can get tax deductions upto ₹ 1.50 Lakh on the principal amount of investment.
    • NSC offers interest rates at 6.8% and is compounded annually.

    Post Office Savings Account

    Post Office Savings Accounts are similar to regular savings accounts in a bank except that they can be opened at a post office. The funds invested in the Post Office Savings Account can be transferred from one post office to another. Features of the Post Office Savings Account are as follows.

    • To open a Post Office Savings Account, you need to maintain a minimum balance of ₹ 50 and ₹ 500 for non-cheque accounts and accounts with cheque facility respectively.
    • There is no tenure for investment in a Post office Savings Account.
    • A minor can also open a Post Office Savings Account. However, they must have a minimum age of 10 years to be eligible for opening a Post Office Savings Account.
    • The interest rates of Post Office Savings Account is 4% and is fully taxable.

    Post Office Time Deposit

    Post Office Time Deposit is one of the most popular saving schemes offered by Indian Post Office, particularly in rural and remote areas that are relatively under-banked and have limited access to investment products. It is similar to fixed deposits offered by banks and has the following features.

    • You need to invest a minimum of ₹ 100 in Post Office Time Deposit and there is no limit on the maximum amount of investment.
    • The tenure of Post Office Time Deposit ranges between 1 to 5 years.
    • Time Deposits for 5-year tenure are also eligible for tax deductions under Sec 80C of Income Act.
    • Investors can get returns on Post Office Time Deposit at rates ranging between 5.5% – 6.7%

    Post Office Recurring Deposit Account

    Post Office Recurring Deposit Account scheme is a special kind of term deposit which helps people with regular savings to deposit a fixed amount every month for a tenure of 5 years and earn returns at the fixed deposit rates. Investors can, however, extend the tenure of investment after 5 years.

    • Investors can invest as less as ₹ 10 every month in their RD account. There is no limit on the maximum amount that can be invested in a Post Office Recurring Deposit Account.
    • You can open a Post Office RD account if you are an Indian resident above the age of 18 years. Parents or Guardians can open the account on behalf of minors above the age of 10 years.
    • Under Sec 80 C of the Income Tax Act, investors can get tax exemptions upto ₹ 1.50 Lakh on their investments.
    • It offers an interest rate at 5.8% and is compounded annually.

    Post Office Monthly Income Scheme (POMIS)

    Post Office Monthly Income Scheme is a saving scheme that allows investors to get regular monthly income as they make a lump-sum investment. Account-holders can open multiple accounts singly or jointly in the Post Office Monthly Income Scheme for a tenure of 5 years.

    • Investors need to make a minimum deposit of ₹ 1,500 in their accounts and can make maximum investment upto ₹ 4.50 Lakh in a single holding account. The maximum limit for joint accounts is 9 lakhs.
    • Indian residents of aged 10 or above can open an account in the Post Office Monthly Income Scheme.
    • There are, however, no tax benefits under this scheme.
    • Post Office Monthly Income Scheme offers an interest rate at 6.6% and is compounded annually.

    Kisan Vikas Patra (KVP)

    Kisan Vikas Patra is a small savings instrument that was introduced by India Post in 1988 to facilitate people to invest in a long-term savings plan. It doubles a one time lump time investment in tenure of 10 years and 4 months. Investors can also take a loan against the Kisan Vikas Patra certificate.

    • To invest in Kisan Vikas Patra, investors need to make a minimum deposit of ₹ 1,000. There is no limit for the maximum amount that can be invested in a KVP scheme.
    • Indian residents can invest in KVP singly or jointly. Minors can also purchase KVP certificates.
    • The scheme does not offer any tax rebate on investment.
    • You can get returns on KVP certificates at 6.9%.

    Savings Schemes for the Girl Child

    To change the social outlook towards the girl child and to uplift her standards in society, various savings Schemes especially designed for the girl child have been launched by the central and state government. Sukanya Samriddhi Yojana is one such savings scheme that aims to encourage savings for the girl child.

    Sukanya Samriddhi Yojana

    Sukanya Samriddhi Yojana was launched in 2015 for the girl child aged 10 years or below. Parents can open the accounts for their girl child for a tenure upto 21 years. Here are some features and benefits of opening an account in Sukanya Samriddhi Yojana.

    • Parents or legal guardians need to make a minimum investment of ₹ 1,000 and can invest upto ₹ 1.50 Lakh every year.
    • Under Sec 80 C of the Income Tax Act, SSY comes with EEE (exempt, exempt, exempt) tax feature, where the principal amount invested, interest earned and the amount received at maturity allows tax exemptions.
    • SSY enables a premature withdrawal of funds upto 50% of the funds for educational purposes as the girl attains the age of 18.
    • Sukanya Samriddhi Yojana offers an interest rate of 7.60%.

    Savings Schemes for Senior Citizens

    The saving schemes for Senior Citizens are designed for senior citizens who want to park their savings to keep tax liability at bay and ensure regular income during the retirement period. Building a retirement portfolio with a mix of government-backed savings schemes and market-linked savings schemes helps to ensure that senior citizens can meet the household expenses after retirement. Here are some of the investment options for Senior Citizens.

    Senior Citizens Saving Scheme (SCSS)

    Senior Citizens Saving Scheme or SCSS is a government-backed investment scheme for senior citizens above the age of 60 years. The individuals who are aged between 55 years and 60 years and have opted for Voluntary Retirement Scheme can also avail the benefits of SCSS. Here are some features of the Senior Citizens Saving Scheme.

    • Senior Citizens need to invest a minimum of ₹ 1,000 in their accounts and can invest upto ₹ 15 Lakh.
    • The tenure of Senior Citizens Saving Scheme is 5 years, which can further be extended for 3 years.
    • Under Sec 80C of the Income Tax Act, you can get tax exemptions upto ₹ 1.50 Lakh on your investments. However, there are no tax deductions on interest earned on the investment.
    • You cannot close your account prematurely as closing the account after one year attracts a penalty of 1.5%. If you close the account between 1st and 2nd year of opening the account, then you will have to pay a penalty fee of 1% for premature closure.
    • SCSS offers an interest rate of 7.40% to the senior citizens.

    Pradhan Mantri Vaya Vandana Yojana (PMVVY)

    Pradhan Mantri Vaya Vandana Yojana is an insurance policy-cum- pension scheme backed by the government for senior citizens above the age of 60 years. Individuals who have availed this pension scheme receive a fixed amount at the end of specified tenure as chosen by him. Key features of PMVVY are as follows.

    • The minimum investment required for Pradhan Mantri Vaya Vandana Yojana is Rs 1000. Investors can deposit a maximum of ₹ 15 Lakh in their account.
    • The maximum tenure for the investment scheme is 10 years.
    • Under Section 80C of the Income Tax Act, you can get tax exemptions of up to ₹ 1.50 Lakh on the deposit amount. However, the tax will be applicable to the earned interest as per your Income Tax Slab rate.
    • Senior Citizens can get interest at 7.40 % on investments in Pradhan Mantri Vaya Vandana Yojana.

    NPS (National Pension Scheme)

    National Pension Scheme or NPS was launched by the Central Government to encourage the habit of savings among individuals. Under this scheme, individuals are provided with a certain percentage as a lump-sum payment at the time of retirement. The remaining amount is paid as a pension every month after retirement. Other features of NPS are mentioned below.

    • Anyone between the age of 18-65 years can invest in the National Pension Scheme.
    • You need to invest a minimum of ₹ 1,000 every year in your accounts. However, there is no limit on the maximum amount of investment.
    • NPS matures at the age of 60 years, however, in some cases, it may also be extended upto the age of 70 years.
    • Under Section 80C and 80 CCD (1B) of the Income Tax Act, you can get tax deductions upto ₹ 2 Lakh on your investments.

    FAQs

    Which saving scheme is best?

    There are various government-backed saving schemes and saving schemes offered by banks and post offices. Some of the best saving schemes are the Public Provident Fund, National Savings Certificate, National Pension Scheme etc. Individuals can choose specific saving schemes as per their investment goal.

    What are small savings schemes?

    Small Savings Schemes or Post Office Savings Scheme was introduced by the government to encourage the habit of savings and was originally only provided by post offices. They are categorised as follows:

    • Post office Deposits: Post Office Savings Account, Post Office Time Deposits, Post Office Recurring Deposits, Post Office Monthly Account,
    • Savings Certificates: National Savings Certificate, and Kisan Vikas and Social Security Schemes such as Public Provident Fund, Senior Citizens Savings Scheme, and Sukanya Samriddhi Account.
    • National Small Savings Fund (NSSF)

    Which saving scheme is best in the post office?

    There are various saving schemes offered by post offices. Some of the best saving schemes are as follows:

    • National Savings Certificate
    • Post Office Time Deposit
    • Post Office Recurring Deposit
    • Kisan Vikas Patra

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