Types of Saving Schemes in India

Saving schemes are introduced by the Indian Government or by financial institutions or banks of the public sector. Their interest rates, investment horizons and tax treatments differ. A saving scheme makes us prepared financially for unexpected personal and medical emergencies. This helps you fulfill your personal goals and those of your family-additional education courses to complement your current credentials, further education and marriage for children, etc. In others, money from saving schemes often acts as an additional source of income. Everything else? This instills a disciplined habit of saving regularly.

The advantage of saving schemes is that they are supported by Government, thereby providing full protection and security of your invested money. Furthermore, they are low in risk but have decent returns at the same time. In general, interest rates on saving schemes are updated every 3-6 months.

Types of saving schemes in India can be broadly categorized into 2 types based on their popularity, financial security and returns:

• National Savings Certificate (NSC)
• National Savings Scheme (NSS)

National Savings Certificate (NSC)

The National Savings Certificate is a fixed income savings scheme offered by the Government of India which can be opened with any post office. This requires a savings bond which is proving tax-efficient for the borrower. It is ideally suited primarily for investors with a low risk tolerance from small to medium incomes. It is ideally suited primarily for investors with a low risk tolerance from small to medium incomes. It is comparable to other fixed income savings such as PPF (Public Provident Fund) and Fixed Deposits from Post Office. Being a safe and low-risk investment, however, also implies not guaranteeing high returns, especially when the stock market is volatile. In your name, you can buy an NSC, or hold a joint account with another person, or buy it for a minor. The government, however, only makes this scheme available to citizens of Indian nationality. HUFs (Hindu Undivided Families) and NRIs (Non-Resident Indians) are also not liable for an investment in NSCs.

Salient features and benefits of NSC Savings Scheme:

• They are of two types based on their maturity periods of 5 years and 10 years.
• NSCs do not have any maximum limits of purchase. However, investments of only up to INR 1.5 lakhs attracts tax benefits under Section 80C of the Income Tax Act, 1961.
• The current rate of interest applicable on NSCs is 7.6% per annum. This interest rate is added to the investment and then compounded annually and serves as a stable source of regular income.
• You can start with an investment as small as INR 100 and increase the amount as per your convenience.
• Acceptable as collateral by banks and financial institutions as well as security for secured loans.
• Acts as financial security and support for the nominee on the unforeseen demise of the investor.
• The entire maturity value is payable to the investor when the investment completes its maturity tenure. However, since TDS on NSC pay-outs are applicable, NSC is not completely tax-free.
• Investors are not eligible for premature withdrawal unless under exceptional circumstances like sudden death of the investor or legal order from the court.

National Savings Scheme (NSS)

The National Savings Scheme (NSS), backed by the Government of India, provides the maximum amount guaranteed after its maturity period is complete. Yearly, the relevant interest rate is multiplied. This also offers you the flexibility to prolong the time according to your investment goals. It is also tax deductible according to Section 80 C of the 1961 Income Tax Act.

Salient features and benefits of NSS Savings Scheme:

• Offers fixed assured returns after it completes the maturity term. However, they are not market-linked like some other government schemes.
• The rates on small saving schemes are revised and updated every quarter every quarter. This implies that you will be eligible for higher interest rates.
• NSS schemes like PPF, Sukanya Samriddhi Yojana, NSC etc., attract tax exemptions of up to INR 1.5 lakhs under Section 80C of Income Tax Act, 1961. Besides, interest on Sukanya Samriddhi Yojana and PPF and Sukanya Samriddhi Yojana is also tax-free.
• Investors are not eligible for premature withdrawal unless under exceptional circumstances like sudden death of the investor.

Public Provident Fund (PPF)

This scheme was introduced by the National Savings Institute, under the Finance Ministry of India, in 1968. It is an effective savings instrument, specifically for tax savings.

 

Salient features and benefits of PPF Savings Scheme:

• Attracts an interest rate of 7.6% per year, which is then compounded annually.
• Applicable on a minimum annual investment of INR 500 and a maximum of INR 1,50,000.
• Payable in lump sum or through a maximum of 12 deposits in one financial year.
• Maturity period varies from a minimum tenure of 15 years and can be extended up to a maximum of 5 more years, as per the discretion of the investor.
• Offers further flexibility as it can be moved from one post office or bank to another.
• Not applicable on joint accounts.
• Investors are eligible for tax deductions under Sec. 80C of the IT Act, 1961. Besides, accumulated interest is completely tax-free.
• The accumulated savings is accepted by banks and financial institutions as security and collateral during loan application from the third financial year.

Post Office Savings Scheme

Being one of the saving schemes that are most safe and efficient, it is the most suitable for investors with a low risk appetite. In addition to ensuring high returns for investors, the process is automated, fast and trouble-free. The inherent characteristics of high-end investment and saving schemes in India are followed by this.

Senior Citizens Savings Scheme (SCSS)

In particular, the Senior Citizens Savings Scheme was planned, keeping in mind the special needs of senior citizens in India, that is, people at least 60 years old. Nevertheless, people between the ages of 55 and 60 who have retired or opted for the Voluntary Retirement Scheme (VRS) are still entitled to qualify for the Senior Citizens Savings Scheme, but only if the savings plan account has been released within one month of obtaining their pension benefits.

Kisan Vikas Patra (KVP)

The Kisan Vikas Patra (KVP), initiated in 1988, is one of the Indian Postal Department's most favoured saving schemes. Postponing its initial phenomenal performance, this savings scheme was discontinued as a result of its abuse in 2011. Amid high demand it was re-introduced in 2014.

Sukanya Samriddhi Yojana (SSY)

The Sukanya Samriddhi Yojana (SSY) savings scheme, initiated by the Indian Ministry of Finance, was launched by India's Honorable Prime Minister, Mr. Narendra Modi, to secure the girl's future financially and to help her potential aspirations.