When speaking of a life well lived, financial independence, as exhibited by money conscious living and good saving habits, is one of the fundamental expectations. We all want to save some monies for a rainy day and feel comfortable in the knowledge that no unforeseen financial contingency can deviate us from our chosen way of life. Modern banking is a big supporter of saving schemes and encourages patrons to open clever investment instruments that are intended to ‘horde’ sums of money for a specified duration, earn periodic interest and offer said investors the peace of mind through the unfailing realization that such ‘parked’ monies are working 24×7 for them, aggressively growing and completely protected.
Advantages of Saving Schemes in India
Saving anything (money mostly) can be considered part of the Indian tradition that attributes to responsible and cultured living. The point wherein an individual earns his/her first salary and opens up a small savings account, the person is considered to be all ‘grown-up’ and many shades better than his/her careless, spendthrift and antisocial self from the teenage and late adolescent years. Why must you subscribe to Saving Schemes in India? Read on…
- Readily Available- The Indian government, through both the public and private sector banking system, offers a multitude of saving schemes that are easy to enroll with and are perfectly suited for the strategic as well as casual investor. Their simplicity and abundance makes them a much preferred savings option.
- Long Term Planning- Quite opposite to the run and burn concept, long term savings are focused on a time in the future when abundant monies will be required to comply with an expected requirement. Retirement, marriage of a son/daughter, long awaited foreign trip, etc. demand strategic, long term financial planning.
- Wide Ranges of Products- In India, saving schemes include a plethora of different products that are intended for a wide segment of potential customers. From the Public Provident Fund (employed- retirement fund) and Employee Provident Fund to Kisan Vikas Patra (Agriculturists) and Sukanya Samriddhi Yojana (exclusively for the girl child), the choices are many and super specialized.
- Simple to Enroll- Limited documentation, clearly defined procedures and the Indian Government’s backing ensures that these saving schemes are simple to opt for and safe to be locked onto.
Types of Saving Schemes in India
In terms of their popularity, the following Government of India saving schemes lead the pack,
- National Savings Certificate (NSC)
- National Savings Scheme(NSS)
Consistently, two of the most well followed and popular saving schemes in India, NSC and NSS offer great security alongside robust reliability in terms of returns. The primary features and benefits of these schemes are as follows-
Hike in rates of small savings accounts - Next steps for investors
There has been an increase in the interest rates of a significant number of small savings schemes in Q3 2018. The government has linked the rates of these schemes to the yields of government papers that had similar maturity in 2016 when it announced the interest rate quarterly settings. The increase in the interest rates of government bonds recently has triggered the hike in small savings schemes interest rates.
In spite of the hike in interest rates, investors should be careful when putting money into these schemes. The Senior Citizen Savings Scheme (SCSS) investments can only be done by senior citizens with an investment cap of Rs.15 lakh. The maximum investment allowed in the Sukanya Samriddhi Yojana (SSY) is Rs.1.5 lakh per annum. Other small savings products of recurring deposits and time deposits will incur taxes, and hence, yield smaller returns. It is advisable to invest in these schemes only after 1 October in order to get higher returns.
- Investments in Recurring deposits - New interest rate from 1 Oct 2018 is 7.3% - Investors should invest after 1 Oct
- Investments in Time deposit - New interest rate from 1 Oct 2018 is 6.9% to 7.8% - Investors should invest after 1 Oct
- Investments in Monthly Income Scheme - New interest rate from 1 Oct 2018 is 7.7% - Investors should invest after 1 Oct
- Investments in 5 year NSC - VIII Issue - New interest rate from 1 Oct 2018 is 8% - Investors should invest after 1 Oct
- Investments in SCSS - New interest rate from 1 Oct 2018 is 8.7% - Investors should invest after 1 Oct
- Investments in Kisan Vikas Patra - New interest rate from 1 Oct 2018 is 7.7% - Investors should invest after 1 Oct
- Investments in PPF - New interest rate from 1 Oct 2018 is 8% - Investors can invest now
- Investments in SSY - New interest rate from 1 Oct 2018 is 8.5% - Investors can invest now
Features of National Savings Certificate
- No maximum limit for investment with 0% tax deduction at source.
- Impressive interest rate at 8.50% (NSC-VIII issue) and 8.80% (NSC-IX issue).
- Tax savings per 80C of Income Tax Act for investments in excess of Rs.1,00,000 per annum.
- Very attractive returns, a nominal investment of Rs.100 will yield Rs.234.35 in 10 years.
- These certificates can be transferred from person to another once through the lifetime of the certificate.
- The tenure of an NSC portfolio is 5 and 10 years for the NSC VIII Issue and NSC IX Issue respectively.
- The interest accumulated annually is reinvested in line with the provisions of Section 80C of IT Act. Interest compounded on a half-yearly basis.
- Can be used as collateral when applying for a bank loan.
Features of National Savings Scheme
- Income tax exemption on principal amount as well as earned interest upto Rs.9,000.
- Interest compounded annually.
- Cannot be pledged as security when applying for any bank loan.
- Impressive interest rate of 9% per annum.
- The tenure of an NSS portfolio is four years.
Public Provident Fund (PPF)
A potent financial instrument that is tuned at savings in general and tax savings in particular, the PPF concept was floated by the National Savings Institute, Finance Ministry of India, in 1968. The PPF scheme offers a plethora of features and benefits that make it a popular option in its class.
- Interest rate of 8.70% p.a is compounded annually.
- Minimum yearly investment of just Rs.500 to a maximum of Rs.1,50,000.
- The maturity period of a PPF account is 15 years. However, this can be extended for upto 5 additional years.
- A maximum of 12 deposits can be made in a financial year. Lump sum payments are also an option.
- Joint accounts aren’t possible, plus, PPF accounts cannot be closed before the maturity period.
- PPF accounts can be moved from one bank/post-office to another.
- Accumulated interest is completely tax free.
- PPF accounts save tax under Sec. 80C of the IT Act.
- Applicant can avail loan with the PPF account as collateral from the 3rd financial year.
Post Office Savings Scheme
In the Indian context, the legendary Indian Postal system has always played a key role in helping inculcate the habit of financial savings amongst the Indian public. The local post office is seen as more approachable (especially amongst the semi-urban and rural folks) and more customer friendly in terms of higher returns and limited inherent procedures. The Post Office Saving Schemes include a plethora of products that offer the reliability associated with a government run savings portfolio, and the full-scale treatment that is characteristic of most high-end saving and investment schemes in India. A fair list of such products are as follows-
- Post Office Savings Account
- 5 Years Post Office Recurring Deposit Account
- Post Office Time Deposit Account
- Post Office Monthly Income Account Scheme
- Senior Citizens Saving Scheme
- 15 Years Public Provident Fund Account
- National Savings Certificates (NSC)- 5 Years NSC (VIII Issue) and 10 Years NSC (IX Issue)
- Kisan Vikas Patra (KVP)
- Sukanya Samriddhi Account
Senior Citizens Savings Scheme (SCSS)
This saving scheme option is exclusive to senior citizens in India. Ideally, the applicant must be 60 years or more but those between the ages of 55-60 years, are retired or have opted for VRS, can also apply, provided that the account is opened within one month of the receipt of their retirement benefits. The salient features of SCSS are as follows-
- Interest rate of 9.3% p.a, payable on any of the following dates in year- 31st March, 30th June, 30th Sept and 31st December.
- The tenure of a SCSS portfolio is 5 years.
- The applicant can make only one deposit into the account. This amount should be in multiples of Rs.1,000 and must not exceed a maximum of Rs.15 lakhs.
- The account can be transferred from one post office/bank to another.
- The SCSS account can be closed prematurely, provided the applicant shells out 1.5% of the deposit amount in the first year and 1.0% of the deposit amount in the second year.
- Post the maturity of the account, the tenure can be extended for a further 3 years. After completing 1 year of this extension period, the account can be prematurely closed without any deductions.
- TDS is deducted at source on the accumulated interest if the latter exceeds Rs.10,000 p.a.
- SCSS accounts save tax as per the Section 80C of the Income Tax Act, 1961.
Kisan Vikas Patra (KVP)
First launched in 1988, the Kisan Vikas Patra (KVP) is one of the premier and popular saving scheme offering from the Indian Postal Department. This product has had a very chequered history- initially successful, deemed a product that could be misused and thus terminated in 2011, followed by a triumphant return to prominence and popular consumption in 2014. The salient features of KVP are as follows-
- The grand USP- Money invested by the applicant doubles in 100 months (8 years, 4 months).
- KVPs are available in the following denominations- Rs.1000, Rs.5000, Rs.10,000 and Rs.50,000.
- The minimum purchase value for the KVP is Rs.1000. There is no maximum limit.
- KVPs are available at all departmental post offices across India.
- These certificates can be prematurely encashed after 2 ½ years from the point of issue.
- KVPs can be transferred from one individual to another and from one post office to another.
Sukanya Samriddhi Account
A premier saving scheme offering from the Indian Ministry of Finance, the Sukanya Samriddhi Yojana (SSY) Accounts are aimed at ensuring a bright future for the girl children in India. This ambitious and resourceful scheme was launched by the honorable Prime Minister of India, Mr. Narendra Modi, and has quickly emerged as a popular “Savings Scheme” that aims to provide financial backing for a girl child’s varied, lifelong aspirations. The thoughtful features of this scheme are as follows-
- Attractive interest rate at 9.2% p.a. This is in fact one of the highest rates of interest in its class.
- Account can be opened at any departmental post office or authorized banks in India.
- The opening amount for the SSY account is Rs.1000. Thereafter, deposits can be made in multiples of Rs.100. The minimum deposit into the account must amount to Rs.1000, the maximum limit is Rs.1,50,000 per year.
- The SSY account attains maturity in 21 years from the date of issue. However, the account holder is expected to pay into the account for a total duration of 14 years.
- A SSY account can be transferred from one post office/bank to another, anywhere in India.
Atal Pension Yojana
Named after one of India’s most popular erstwhile Prime Ministers, the Atal Pension Yojana is aimed squarely at the weaker sections of the society as well as those individuals who can benefit from a government sponsored welfare program. The central premise of this scheme is to provide the pension option to individuals who are working in the unorganized professional sectors and aren’t covered by any regular pension plans. Applicants pay a very low premium and enjoy the fruits of a robust and reliable pension plan. The salient features of the Atal Pension Yojana are as follows-
- Citizens of India between the age groups of 18-40 years can apply.
- The applicant is expected to regularly pay premiums for a minimum duration of 20 years. Since most individuals step into the pension years at the age of 60- the upper limit for application is set at 40 years.
- The applicant must have an active savings bank account.
- The applicant must not have subscribed to any other statutory social security schemes.
- Actual pension amount depends on the tenure of premium payment. The higher number of premiums paid, the higher will be the payable pension amount.
Employee Provident Fund (EPF)
Administered by the Employees' Provident Fund Organization (EPFO), the Employee Provident Fund (EPF) targets Indian workers through a system of compulsory monetary contribution into a specified ‘provident fund’ account that will act at a later date as their retirement fund, or could also be treated as emergency funds for unforeseen or planned financial requirements. In essence, the employer and employee each contribute 12% of the latter’s salary amount into this provident fund account on a monthly basis. EPF is one of the shining success stories when it comes to government sponsored saving schemes in India with massive popularity and vast implementation.
The interest rate applicable on the amount accumulated in the EPF account is decided by the government and has traditionally ranged between 8-12% of the funds maintained in the account. The interest is credited to the concerned account on the 1st April each year. The EPFO office sends annual reports through the employer that the concerned employee can use to get clear bearings on the amount accumulated in his/her account. Also, EPF related information can be sourced from the EPFO’s official website.
National Pension System (NPS)
The retirement years are always fraught with great change and slowing down of the usual pace of life. This is the time when sources of income may be limited due to the individual’s advancing age and/or the unavailability of income options that suit said individual’s capabilities. The National Pension System aims to negate such scenarios- offering retired individuals the security of a regular income (pension) thanks to small investments made to this pension fund while they were gainfully employed. The subscriber enjoys the lump sum amount, broken down through an annuity plan, and served on a monthly basis as the regular income.
The NPS scheme is available to employees of state and central government organizations, employees of corporate and MNC entities, individuals as well as workers from the various unorganized sectors. The contribution to the NPS account, when speaking of employees from the central/state government organizations, is 10% deduction from said employee’s monthly salary appended with an equal contribution from the government. In other cases, the applicant must treat the NPS as any other long term savings instrument and action the requisite, timely investments. Naturally, the National Pension System is one of the enduring favorites when it comes to long term saving schemes in India.
Voluntary Provident Fund (VPF)
The term ‘voluntary’ signifies willingly or doing something when guided by their own free will. The concept of Voluntary Provident Fund (VPF) draws on this, wherein the subscriber willingly contributes upto 100% of their basic salary and dearness allowance into their respective Employee Provident Fund (EPF), instead of the usual 12%. The reservoir for such funds is the concerned employee’s EPF account, meaning, any activity concerning the employee’s VPF will impact the EPF portfolio too, and vice versa. For the financial year 2014-15, the VPF account doles out an interest rate of 8.75% on the accumulated funds.
Deposit Scheme for Retiring Govt Employees
This scheme is particularly targeted to benefit retiring public sector employees. A simple savings scheme that draws on its ease of registration, documentation and terms to draw a massive following. An account of this nature can be opened with a locally payable cheque, DD, etc, alongside a certificate from the employer that indicates the nature of retirement benefits that are applicable to the prospective applicant. The interest accrued will be paid from the date of deposit to 30th June/31st December of said year, followed by half-yearly payments as of 30th June or 31st December. The depositor cannot make any withdrawals during the first year of the account’s existence- the same can be accomplished anytime after completing the first year from the point of account creation.
BankBazaar.com on Saving Schemes in India
The leading online banking products aggregator, BankBazaar.com, is also an inexhaustible reservoir of information when it comes to the various saving schemes currently circulating in India. The information pertains to products that are targeted at both public and private sector employees, those who are employed as well as retired, from the popular evergreen products to the lesser known impact options. bankbazaar.com draws in from its years of experience as an online informational behemoth when it comes to banking products and offers comprehensive information that is accurate, up-to-date and inclusive of almost all the major and minor players competing in this niche segment.
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