SAVING SCHEMES IN INDIA
Saving schemes are investment vehicles where an individual or investor can park their idle money for earning returns. These schemes help the individuals save for financial goals or a financially secure future by providing a disciplinary investment approach. There are so many saving schemes in India, each carrying different risk-return characteristics. Investors in India can look at choosing the best savings schemes as per their risk profile, return expectations, financial goals & other important factors.
The schemes discussed below highlight the schemes backed by the Indian government as well as other schemes available in the country. Also, some of the schemes mentioned below provide tax benefits under section 80C of the Income Tax Act,1961. Besides tax-saving needs, these schemes could also be considered for regular savings & investment purposes.
Let’s have a look at the savings schemes available in India:
|1. Equity Linked Saving Schemes||12-15% (on Long term)|
|2. Post Office Savings Account||4% p.a.|
|3. Post Office Recurring Deposit (RD)||5.8% p.a.|
|4. Post Office Time Deposit||5.5%-6.7% p.a.|
|5. Post Office Monthly Income Scheme||6.6% p.a.|
|6. Senior Citizens Savings Scheme||7.4% p.a.|
|7. Public Provident Fund (PPF)||7.1% p.a.|
|8. National Savings Certificate||6.8% p.a.|
|9. Kisan Vikas Patra (KVP)||6.9% p.a.|
|10. Sukanya Samriddhi Yojana||7.6% p.a.|
|11. Employee Provident Fund (EPF)||8.50%(FY19-20)|
|12. Bank Fixed Deposits||Varies|
|13. Unit Linked Insurance Plan (ULIPs)||8-10% p.a.|
|14. Atal Pension Yojana||Depends upon cont.|
|15. Pradhan Mantri Vaya Vandana Yojana (PMVVY)||7.4% p.a.|
|16. National Pension Scheme (NPS)||Varies|
1. Equity Linked Saving Schemes (ELSS)
ELSS or Tax saving mutual funds are those mutual fund schemes that invest their assets in equity stocks of companies across market capitalizations & different sectors. Along with that, investment in these schemes are eligible for claiming tax deductions of upto Rs.1.5 lacs under section 80C of IT Act,1961.
- Have the potential to offer highest returns among all the available tax saving investments because of equity exposures
- Carry a lock-in period of 3 years (lowest among the tax saving investments)
- Long Term Capital Gains (LTCG) Tax of 10% on gains above Rs.1 lac in a financial year.
2. Post Office Savings Account
A liquid account just like a savings bank account. This scheme by post office is ideal for parking regular savings that might be needed on short notice. Post office savings account allows quick withdrawals anytime as per the requirements.
- Interest rate on deposits is currently 4.00% p.a.
- Interest earned of up to Rs.10,000 is tax-exempt under Section 80TTA.
- Minimum amount for opening the account - Rs.500
- Minimum deposit - Rs.20 & No upper limit.
- Minimum balance of Rs.500 needs to be maintained mandatorily to keep the account working.
3. Post Office Recurring Deposit (RD)
The Post Office RD scheme lets you make a fixed amount of deposit every month for 5 years. This way a good amount of corpus is accumulated by following a disciplinary approach of regular deposits.
- Offers an interest rate of 5.8% p.a.
- Maturity period of the scheme is 5 years.
- Minimum deposit per month- Rs.100 and in multiples of Rs.10 thereafter.
- Premature withdrawal allowed after 3 years on the condition of applicability of the savings account rate on deposits.
- Loan of upto 50% of account balance allowed after 1 year which needs to be paid back as a single shot payment.
4. Post Office Time Deposit
Post Office Time deposits are term deposits offered by India Post Offices for different tenures like 1,2,3 & 5 years. This scheme is just like an FD scheme offered by the banks. These schemes are known to offer higher interest rates than the regular savings accounts. Therefore, this makes it an ideal scheme for parking idle money for a tenure as per the individual's requirements. It is a risk-free investment.
- Interest rates in the range of 5.5%-6.7% for different tenures.
- Interest rates calculated quarterly but payable annually.
- Minimum amount for deposit- Rs.1000 and No upper limit.
- Tax benefits under Section 80C on 5 year time deposits.
5. Post Office Monthly Income Scheme
Post Office Monthly Income is a savings scheme offering regular fixed income or interest to the subscriber on a one-time investment. This scheme is suitable for individuals looking for regular income.
- Minimum investment- Rs.1000 & maximum investment- Rs.4.5 lacs for individual account & Rs.9 Lacs in a joint account.
- Offers an interest rate of 6.6%p.a. payable every month.
- Maturity period- 5 Years
- Interest will be paid every month into the savings account.
- Premature encashment can be made after one year subject to deductions from deposits, as specified.
6. Senior Citizens Savings Scheme
Senior Citizens Savings Scheme (SCSS) is a savings scheme exclusively launched for the senior citizens by the government of India. The scheme aims to ensure the financial security of senior citizens through regular interest payouts on the lump sum deposit made by investors. The account can be opened by individuals above 60 years of age, retired defense employees (50 years & above) or individuals retired on superannuation/VRS.
- Maturity period of 5 years, can be extended for 3 more years.
- Interest rate on account is 7.4% p.a., payable quarterly.
- Minimum investment- Rs.1000 & maximum investment- Rs.15 lacs.
- Premature closure - Allowed,subject to penalties.
- Tax benefits under 80C
7. Public Provident Fund
Public Provident Fund is a long tenure investment product with a maturity period of 15 years which can be extended further for 5 years. The scheme helps to build a large corpus for meeting long term financial goals. Investors need to make contributions every year via lump sum or installments into the account.
- Interest rate on PPF accounts is 7.1% p.a., which is compounded annually.
- Minimum investment- Rs.500 & maximum investment- Rs.1.5 lacs in a financial year.
- Premature withdrawal- Allowed after 5 years, subject to 1% interest rate cut from the date of opening.
- Contributions eligible for claiming tax deductions under Section 80C.
- Interest earned & amount at the maturity also exempt from taxes.
8. National Savings Certificates (NSC)
National Savings Certificates is a certificate saving scheme launched by the government of India. The objective of the scheme is to encourage savings & investments among the citizens to prepare for long term goals. The scheme doesn’t make regular interest payments rather pays the accumulated interest along with the invested amount at the maturity.
- Interest rate on NSC is currently 6.8% which is compounded annually.
- Available in the branches of Post Offices across the country.
- Minimum investment- Rs.1,000 & No upper limit.
- Deposits eligible for claiming tax deductions under Section 80C. However, interest is taxable.
9. Kisan Vikas Patra (KVP) Account
Kisan Vikas Patra is a small savings scheme designed in a way that it doubles the amount of investment made by the investors in a pre-specified period. The scheme is a long tenure investment product and therefore is ideal for making investments for long term goals. The scheme can be availed at any branch of the post office or across the branches of authorized banks.
- Currently, KVP account doubles the amount of investment in 124 months i.e 10 years & 4 months.
- Interest rate comes out to be 6.9% which is compounded annually.
- Minimum investment- Rs.1,000 & No upper limit.
- Can be encashed after 2.5 years.
- Certificate transferable from one person to another.
10. Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is a saving scheme specially designed for the girl child by the Government of India as a part of “Beti Bachao Beti Padhao” campaign. The scheme encourages regular savings & investments by parents/guardians for their girl’s education, marriage & financially secured future. The account can be opened by parents before their girl turns 10. The scheme has a maturity of 21 years from the date of opening the account or until her marriage after she turns 18.
- Interest rate is currently 7.6% p.a. which is compounded annually.
- Minimum deposit- Rs.250 in a financial year & Maximum deposit- Rs.1.5 lacs.
- No limit on the number of deposits in a month or year.
- Mandatory deposits for 15 years from the opening of an SSY account.
- EEE in taxation- Contributions, interest earned & maturity proceeds exempt from taxes.
11. Employees’ Provident Fund (EPF)
Employees’ Provident Fund (EPF) is a retirement scheme launched under the Employees’ Provident Funds and Miscellaneous Act, 1952. The scheme helps the individual to build a corpus to meet their needs & requirements after retirement. Under this scheme, an employee needs to contribute 12% of his/her monthly income into the account. And the same amount is also contributed by the employer. A part of the contribution is used to ensure regular pension to the employees after retirement.
- Interest rate applicable to the EPF account is 8.50%(FY19-20).
- Partial withdrawals allowed after 5 years on certain conditions. Also, premature withdrawal is allowed in case of unemployment for over a month.
- Regular pension to the employees after retirement.
- EEE exempt in terms of taxation. However, tax benefits are not applicable in case of withdrawals made before 5 years.
12. Bank Fixed Deposits
Bank Fixed Deposits are term deposits offered by the banks. These deposits are available in the public sector as well as private banks. They are available for different tenures ranging from 7 days to 10 years. Investors can consider the tenure as per his needs & requirements. On a lump sum investment, one can earn low-risk returns which will be paid along with the principal amount at the time of maturity.
- Interest rate varies across banks & for different tenures.
- A low-risk investment.
- Premature withdrawals allowed as per the conditions laid down by the bank.
- FDs with lock-in period 5 years provide tax benefits under Section 80C of IT Act.
- Loans as well as credit cards can be availed against FDs.
13. Unit Linked Insurance Plan (ULIPs)
Unit Linked Insurance Plans are those life insurance plans which provide an opportunity to make investments along with getting a life cover. A part of the premium paid by the investor is utilized in paying for getting a life cover and rest is invested in markets to generate capital gains for the investor. The investors have the option to choose from the various instruments available for making investments as per their risk appetite and return expectations.
- Returns differ across plans as per the chosen asset class. However, returns are lower as compared to mutual funds due to high costs.
- Provides the flexibility to switch between asset classes as per the investor’s requirements.
- Premiums paid for ULIP plans are eligible for claiming tax deductions under Section 80C of IT Act,1961. Maturity proceeds are also exempt under section 10(10D) on certain conditions.
14. Atal Pension Yojana
Atal Pension Yojana is a savings scheme specially launched for the workers in the unorganized sector to ensure their financial security after retirement. The scheme promises to provide a minimum monthly pension to the workers after retirement(or the age of 60 years) in the range of Rs1,000 to Rs.5,000 depending upon the monthly contributions made by them.
- Contributions eligible for tax deductions under section 80C. Additional contributions of up to Rs.50,000 under section 80CCD(1B).
- Premature exit allowed from the scheme.
- Indian citizens between the age of 18 to 40 years eligible for the scheme.
15. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
Pradhan Mantri Vaya Vandana Yojana is an insurance policy cum pension scheme launched by the Government of India and operated by the Life Insurance Corporation(LIC) of India. The objective of the scheme is to provide guaranteed regular pension to the senior citizens on a lump sum deposit.
- Maturity tenure of 10 years.
- Offers an assured interest rate of 7.4% p.a.
- Option to choose the frequency of payouts i.e monthly, quarterly, half-yearly & yearly.
- Minimum investment- 1,56,658 (for yearly payout) & Maximum investment- 15,00,000 (for monthly payout).
- No tax benefits. However, the scheme has been exempted from GST.
- Premature exit facility available for urgent needs where the surrender value will be 98% of the purchase price.
- Offers death benefits in case of demise of the policyholder. Nominees are given the insured amount as a claim.
16. National Pension Scheme (NPS)
National Pension Scheme is a pension scheme launched by the Indian Government in 2004 for providing a systematic architecture of savings & investments to the citizens of India. Under the scheme, the account holder makes contributions to the NPS account either lump-sum investment or in installments every year. The amount contributed is invested into various asset classes like equities, government securities, corporate bonds & AIFs to generate returns on investment. At the time of retirement i.e at the age of 60, the subscriber can make a lump-sum withdrawal of up to 60% of the accumulated corpus, and the rest amount needs to be used for purchasing an annuity scheme that could provide monthly pensions to the subscriber.
- Returns are market-linked and depend upon the chosen asset allocation.
- Investments handled by professional pension fund managers.
- Subscribers are given the option to choose an auto or active mode for investments as per their requirements.
- Two types of account- Tier-1 (valid till retirement) & Tier-2 (voluntary account with high liquidity).
- Comes under the EEE category in terms of taxation (Tier-1 Account).
- Flexibility to switch b/w scheme preferences & PF manager.