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Various types of savings schemes

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There are a large number of saving schemes available. If you are looking for guaranteed returns & very low risk, savings schemes are the best options. Saving schemes ensure disciplined investment & the risks are minimal as the government launches these schemes. The government sets the interest rates which are reviewed periodically every three months to a year. 

Individuals can benefit from these schemes by saving for long-term goals like retirement, marriage, etc. These schemes are hassle-free as investments can be made online.

1) Tax savings FD

If you are looking for lower-risk & guaranteed returns Fixed deposits can be a good choice of investment instrument. In FDs deductions under 80C up to 1.5L are allowed. The interest rates are fixed by the government & may differ from bank to bank. You can start your FD investment with as little as Rs.100 

Tenure- long term- 10 Years

Interest rate- 6.50%-7.25%

Lock-in Period- 5 years

Tax Exemption- ETE

Minimum/ maximum investment- 100/no limit

2) ULIP

A ULIP is a Unit Linked Insurance Plan, it is a combination of insurance & investment. A portion of the premium is used to provide insurance coverage to the insured’s family, while the other half is invested in market-linked assets chosen by the insured, such as stock, debt, and money market funds, to generate advantageous long-term returns on investment. It also gives the benefit of tax savings under Sections 80C and 10(10D) of the Income Tax Act. You also have the freedom to choose your life cover option along with the investment type. 

Tenure- after 5 years, partial withdrawals are applicable

Interest rate- fluctuating (based upon underlying asset returns)

Lock-in Period- 5 Years

Tax Exemption- EEE

Minimum/ maximum investment- 100/no limit

3) ELSS

An ELSS is an Equity Linked Savings Scheme that permits an individual or HUF to deduct up to Rs. 1.5 lacs from total income under Section 80C of the Income Tax Act of 1961. Thus, if an individual invests Rs. 50,000 in an ELSS, the money is deducted from her total taxable income, lowering their tax burden. It has the shortest lock-in period among all 80C options. 

Tenure- Can withdraw funds after three years.

Interest rate- Not fixed

Lock-in Period- 3 Years

Tax Exemption-  (Interest taxable at 10% LTCG), Dividend is taxable 10% under dividend distribution tax 

Minimum/ maximum investment-  There is no upper capping, while the minimum investable amount varies across fund houses.

4) Sukanya Samriddhi Yojana

The Sukanya Samriddhi Account is a government scheme designed to provide benefits for your girl child 10 years or younger. The parent or guardian can open a maximum of 2 accounts for 2 girls. The scheme will mature after 21 years or in the event of the marriage of the girl. It offers a high-interest rate of 7.6% and tax benefits under 80c. Up to 50% of the investment is allowed when the child is 18 years of age.

Tenure- 21 years 

Interest rate- 7.6% per annum (Q1 FY 2022-23) Changed every quarter

Lock-in Period- 21 years

Tax Exemption- tax deductions under Section 80C of the Income Tax Act. Deductions of up to ₹1.5 lakhs are allowed.

Minimum/ maximum investment- Rs. 250/Rs. 1.5 Lakh in a financial year.

5) NPS

NPS is a voluntary retirement savings system that is designed to allow subscribers to make specified contributions to planned savings, so insuring the future in the form of a pension. You have to invest while you are employed & then receive the invested amount in annuity form each month after retirement.

For employees of central & state governments, 10% of the monthly income is deducted & equal amount is contributed by the government.

Tenure- after the age of 60 can withdraw a maximum of 60% of your corpus. 40% can be used to purchase an annuity.

Interest rate- 9% to 12%

Lock-in Period- until the age of 60

Tax Exemption- EET

6) Pradhan Mantri Vaya Vandana yojana

It is a pension plan by the Life Insurance Corporation. It is a scheme for senior citizens aged a minimum of 60 years. You get assured returns & you can choose the interval of payments monthly/quarterly/half-yearly or annually.

Tenure- 10 Years

Interest rate- 7.4% p.a.

Lock-in Period- 10 Years

Tax Exemption- Tax deduction on principle is allowed, and Interest is tax-exempt

Minimum/ maximum investment- Rs. 1000/ Rs.15 L

7) Senior Citizen Saving Scheme

This scheme provides a regular income for senior citizens aged above 60 years. The scheme is available in post offices & certified banks all over India.

Tenure- 5 years (with an option to extend it for 3 more years)

Interest rate- 7.4%

Lock-in Period- 5 Years

Tax Exemption- Tax benefit up to Rs. 1.5 Lakh

Minimum/ maximum investment- Rs.1000/ Rs. 15 L

Key Schemes To Invest

Government Savings Scheme

8) Public Provident Fund (PPF)

PPF is the most popular investment option, it is the most preferred as it is the safest option. All Indian citizens can avail the benefit of this scheme. You can also avail loan against your PPF account. The maximum amount that can be availed is 25% in the second year. You can apply for a second loan only when the first loan is paid.

Tenure- 15 years (Can be renewed in spans of 5 years)

Interest rate– 7.1%

Lock-in Period- partial PPF withdrawal is allowed from the seventh year of account opening.

Tax Exemption- Under Section 80C of the Income Tax Act, 1961, any investment made towards the PPF account is tax-free.

Minimum/ maximum investment- Rs.50/Rs.1.5 lakh p.a.

9) National Savings Certificate

All Indian citizens can avail this scheme from any post office. It is backed by the government and hence carries a very low risk. NSC interest is not tax-exempt but since it is reinvested each year it is eligible for tax deduction under 80C.

Tenure- 5 Years

Interest rate- 6.8% p.a.

Lock-in Period- 5 Years

Tax Exemption- interest is reinvested 

Minimum/ maximum investment- Rs.1000/no limit

10) Post Office Savings Account

It is a regular savings account just with a better rate of return. There is no lock-in period hence allowing withdrawals for emergencies. The risk exposure is minimal & you get guaranteed returns. For both joint & single account holders, the interest rate is 4%. Interests up to Rs.10,000 is tax-exempt.

Tenure- Flexible

Interest rate- 4%

Lock-in period- NIL

Tax Exemption- Tax-free Interest 

Minimum/Maximum Investment- Rs.20/No limit

11) Post office time deposit

This is the most popular scheme in rural India. The tenure for time deposits can be 1, 2, 3, 4, or 5 years. Interest rates are revised every quarter by the finance ministry. Interest rates for 1st Apr 2022 to 30th June 2022 are 1Yr to 3Yr- 5.5% & for 5Yr- 6.7%.  You can open many numbers of time deposits there is no cap. You can claim the tax benefit under section 80C for only a 5-year post office time deposit.

Tenure- 1,2,3 & 5Yrs

Interest rate- First 3 years-5.5%, Fifth year- 6.7%

Lock-in period- NIL

Tax Exemption– Deduction upto 5 yrs

Minimum/Maximum Investment- Rs.200/No limit

12) Post office recurring deposit

Post office RD is beneficial for investors who have a small investable corpus. You can start your investment with as little as Rs.10 per month & subsequent amounts in multiple of 5. There is no maximum amount. You have the flexibility to open multiple accounts. The interest rate is compounded quarterly. You can get a loan of up to 50% against the deposit available in the account after completing 12 instalments without defaulting.

The scheme is beneficial for small investors who want to culminate investing habits & build a corpus over time.

Tenure- 5 Years

Interest rate- 5.8%

Lock-in period-  30 days to 3 months

Tax Exemption- 10% on the interest earned which exceeds Rs. 40,000( Rs. 50000 for senior citizens)

Minimum/Maximum Investment- Rs.10/ No Limit

13) Post office monthly income scheme

As the name suggests, the scheme offers monthly interest payments on the principal deposited by the investor. Minors above the age of 10 can also avail of the benefits of this scheme along with resident individuals. You can open multiple accounts in this monthly scheme, but your invested amount should not exceed  Rs.4.5 L. There is a 1% penalty if you withdraw funds in between 1-3 yrs and another 1% penalty for post 3 yrs. POMIS does not provide any tax benefits, unlike other schemes.

Tenure- 5 Yrs

Interest rate- 6.6%

Lock-in period- Penalty of withdrawals

Tax Exemption- NIL

Minimum/Maximum Investment- Rs.1500/ single account-4.5L & joint account-9L

14) Kisan Vikas Patra

India Post launched this in 1988, it’s a small savings certificate. It was launched for the long-term wealth creation of farmers. The tenure of the scheme is 118 months to 9 yrs & 10 months. The best part about this scheme is if you deposit a sum today it gets doubled at the end of the tenure. The minimum investable amount is Rs.1000 & there is no limit on the maximum amount. For deposits of more than Rs.10 Lakh investors need to produce documents like income tax returns, salary slips, etc. Aadhar & PAN are required for identity proof.

Tenure- 9 yrs & 10 Months

Interest rate- 6.9%

Lock-in period- 30 Months

Tax Exemption- returns are completely taxable. However, Tax Deducted at Source (TDS) is exempt from withdrawals after the maturity period.

Minimum/Maximum Investment- Rs.1000/ No Limit

To conclude, there are various types of saving schemes that you can invest in, Since all of them are government-supported they have minimal risk & guaranteed returns. These schemes have attractive interest rates & tax benefits. You can select the most suitable scheme or invest in a combination of schemes for wealth creation. 

Disclaimer: This write up is solely for educational purposes.

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