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  • Writer's pictureSahastha

Small Saving Schemes

Updated: Oct 4, 2023

Small saving schemes are investment options for Indian citizens launched by the Government of India, operated through post office and public/private sector banks. These schemes are government backed investment options for cultivating healthy investing and saving habits among Indian citizens. It also helps in keeping a steady inflow of money into the economy. Earlier people had less exposure in keeping their money in investment options which resulted in stagnation and poor circulation of wealth. Small saving schemes provide Indian citizens to allow their money to appreciate at interest rates and also enjoy the tax benefits that comes with it.

There are different types of small saving schemes prevalent in India, some of which are as follows:

Sukanya Samruddhi Yojana (SSY)

The SSY scheme was launched by the Prime Minister Narendra Modi aiming at securing a girl child’s future. This government-backed scheme can be opened by the parents of a girl child aged below 10 years. Parents are required to contribute for 15 years. Individuals can get a tax deduction of up to ₹1.5 lakh per year under Section 80C. A maximum of two such accounts can be opened per household, one for each girl child. The account matures after 21 years of opening the account or in the event of the marriage of the girl child after she gains the age of 18 years. A premature withdraw up to 50% of investment is allowed after the child gains the age of 18 years even if she is not getting married. Since the money gets locked in for a long period of time, this makes the scheme highly illiquid. Premature withdrawals are not allowed in this scheme, so it’s suggested to not put all of your savings in it.

Public Provident Funds (PPF):

The Public Provident Fund is a post office savings scheme launched by the National Savings Institute in 1968. It is one of the most popular tax saving investment schemes. In PPF, a long-term investment could be made with a tenure of 15 years and can also be extended in blocks of five years after the completion of the lock-in period. One can open a PPF account in banks and post offices with a minimal amount of ₹ 500. The money deposited with your PPF account will get tax deduction under Section 80C of the Income Tax Act. You can invest up to Rs.1.5 lakh per annum. Retirement is a certain event in everyone lives. PPF is the only product which comes in the category of EEE in open market. Investing 25% of the retirement corpus in PPF and EPF is a good option. It is an excellent investment option since it comes with handsome interest rate and sovereign guarantee.

Senior Citizens Savings Scheme (SCSS)

Senior Citizen Saving Scheme (SCSS) is aimed to provide a regular income for senior citizens aged above 60 years available at a certified bank and post offices across India. The scheme provides a regular income in the form of interest payments. The interest is computed every quarter and credited to the investor’s account. This post office savings scheme comes with a five year lock-in period. Investors also have an option to extend the scheme duration for another three years. Furthermore, investments into SCSS qualify for tax exemption under Section 80C of the Income Tax Act, 1961. However, the interest income from the scheme is taxable. Also, TDS at 10% is deducted in case the interest income is more than ₹ 50,000 for senior citizen. However if the total income for the year is below the exempted limit of Income tax you can avoid paying TDS. The minimum investment is ₹1,000, and the maximum is ₹15 lakh.

Kisan Vikas Patra 

Kisan Vikas Patra is a small savings certificate scheme launched by India Post In 1988. Like all other government schemes, KVP was also launched as a long term wealth creation avenue for farmers. Over the years it has emerged as a safe wealth creation option that Indian citizens with low risk appetites can opt for. The investment has a tenure of 124 months. The scheme encourages long-term investments and suits risk-averse investors who have excess money. The minimum investment is ₹1,000 with no upper limit on investments. KVP offers guaranteed returns and comes with a premature encashment option after completing two and a half years.

National Savings Certificate (NSC)

National Savings Certificate (NSC) is a post office savings scheme that promotes small savings. This government of India initiative encourages investors to save tax while investing. Since the government backs it, the returns are guaranteed. NSC can be obtained from any post office by Indian citizens. The lock-in period for the scheme is five years. The government reviews the interest rate of the scheme once every quarter and takes a call on it. However, the interest rate will not change during the tenure after you purchase the certificate. Tax deductions can be claimed on the investment up to ₹1.5 lakh under Section 80C.

Post Office Savings Account

The Post office saving account is a very popular option for investment which is opted by many people who want to save and grow their money at the same time. It is an account which could be considered as a regular savings account, with a better rate of returns. The minimum investment for opening an account is ₹ 500. However, there is no limit on the maximum amount of deposit. An individual can open only one account. Individuals can open a single account or joint account. A guardian can open an account on behalf of a minor or a person of unsound mind. Also, a minor above the age of 10 can open an account. The minimum withdrawal amount is ₹ 50. However, the account holders should maintain a minimum balance of ₹ 500 at all times. Post office savings scheme account boasts of guaranteed returns and is suitable for investors who have a low risk appetite, and senior citizens seeking an assured source of income with minimal risk exposure.

Post Office Recurring Deposit

One of the most popular schemes amongst other post office saving schemes is the post office recurring deposit. It allows investors to save regularly on a monthly basis. The interest gets compounded on a quarterly basis for the RD scheme. This post office small savings scheme comes with a total of 60 monthly installments. Post Office RD is suitable for individuals who want to save through regular monthly deposits. The minimum amount to invest in a PORD scheme is ₹ 10, with no cap on the maximum amount. All resident Indian nationals above 18 years can open an account with the post office. Also, minors who are ten years old and above can open and operate the account jointly with their guardian. Furthermore, parents or guardians can also open the RD account on behalf of their minor children.

Post Office Time Deposit (POTD)

Post office time deposit scheme is one of best saving schemes run by the Indian post office. This scheme is popular mostly among the rural population of India where better known investment products haven’t reached yet. The Finance Ministry determines the interest rates every quarter. The TD account rates are determined on the basis of the yield of government securities and spread over the government sector yield. Investments in a post office deposit account have a minimum investment requirement of ₹ 1,000. One can open a TD account for any of the following tenures: one year, two years, three years and five years. Furthermore, the depositors can opt for reinvestment of the interest. However, the reinvestment option is not available for one-year time deposits. The scheme is suited for investors seeking assured returns with minimal risk.

Post Office Monthly Income Scheme (POMIS)

POMIS is a low-risk investment scheme that offers monthly income to the depositors in the form of interest payments. The Government of India backs the Post Office Monthly Income Scheme. The minimum investment amount for POMIS is ₹ 1,500, and the maximum limit is ₹ 4,50,000 per individual. Furthermore, the scheme allows premature withdrawals after one year of account opening. However, premature withdrawals come with penalties. This scheme is ideal for investors with low risk appetite looking for a regular assured sum. While this scheme is eligible to be invested in by resident individuals, it can be used by minors above the age of 10. One major downside is that unlike other saving schemes that offer dual benefits of wealth creation as well as tax saving, POMIS does not come with any tax benefits.

InvestmentReturnDurationSSY7.6%21 yearsPPF7.1%15 yearsSenior Citizen Saving Scheme7.4%5 yearsKisan vikas patra6.9%124 monthsNational savings certificate6.8%5 yearsPost office savings account4%No lock-inPost office recurring deposit5.8%5 yearsPost office time deposit5.5%1,2,3, and 5 yearsPost office monthly income scheme6.6%5 years

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