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Savings Plan

Saving Schemes are launched by the Government of India or public sector financial institutions or Banks. They vary in their interest rates, investment horizons and tax treatments. A saving schemes financially prepares us for unforeseen personal and medical emergencies. It helps you meet your personal aspirations and that of your family’s like – additional educational course to supplement your existing qualifications, child’s higher education and marriage, etc. For some, income from saving schemes also serves as an additional source of income. What’s more? It instils a disciplined habit for regular savings.

The advantage of saving schemes is that they are government backed, thereby, offering complete safety and security of your invested capital. Further, they are low on risk, but at the same time, provide good returns. The interest rates on saving schemes are usually revised every 3-6 months.

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

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

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Types of Saving Schemes in India

National Savings Certificate (NSC)

The National Savings Certificate is a scheme offered by the Government of India for fixed income investment that can be opened with any post office. It involves a savings bond that proves to be tax-efficient for the investor. It is best suited mainly for small to mid-income investors with a low risk appetite. This is similar to other fixed income investments like PPF (Public Provident Fund) and Post Office Fixed Deposits.

However, being a safe and low-risk investment also implies that it does not ensure high returns, especially when the capital market is volatile. You can purchase an NSC in your name or hold a joint account with another adult or buy it for a minor. However, the government makes this scheme available only to individuals of Indian nationality. Therefore, HUFs (Hindu Undivided Families) and NRIs (Non-Resident Indians) are not eligible to invest 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)

National Savings Scheme (NSS), backed by the Government of India, offers the entire sum assured after the completion of its maturity tenure. The applicable rate of interest is compounded annually. It also gives you the flexibility to extend the term as per your investment objectives. It is also tax deductible under Section 80 C of the Income Tax Act, 1961.

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 most secure and reliable saving schemes, it is the most suitable for investors who have a low-risk appetite. Besides assuring investors of high returns, the process is streamlined, quick and hassle-free. It is accompanied by the inherent features of high-end investment and saving schemes in India.

The following are the products of Post Office Savings Scheme-

  • 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)

Senior Citizens Savings Scheme was especially planned keeping in mind the unique needs of senior citizens in India, that is, individuals of at least 60 years of age. However, individuals between 55 years and 60 years who have retired or have opted for Voluntary Retirement Scheme (VRS) are also eligible to apply for Senior Citizens Savings Scheme, but only when the savings scheme account has been issued within one month of the receipt of their retirement benefits.

Salient features and benefits of Senior Citizens’ Savings Scheme:

  • The applicable rate of interest for Senior Citizens Savings Scheme is 8.3% quarterly, payable on any one of these days in a financial year – 31st March, 30th June, 30th Sept and 31st. December.
  • The tenure of the saving schemes is 5 years.
  • Investors are eligible for making a maximum of one deposit into the saving schemes and in multiples of INR 1,000.
  • The maximum amount cannot be more than INR 15 lakhs.
  • The account is transferrable from one bank or post office to another.
  • The savings scheme account can be closed before the completion of its full tenure, provided the investor pays 1.5% of the deposit amount in the first year and 1.0% of the amount in the second year.
  • The tenure can be further extended to a maximum of 3 years after the minimum maturity term of 5 years, as per the discretion of the investor. If the investor wants to withdraw the amount after the completion of 1 year of this extended term, the savings scheme account can be closed prematurely without any deductions.
  • The accumulated interest attracts TDS, deducted at source, if the interest exceeds INR 10,000 annually.
  • The accounts of this savings scheme enable investors to avail tax deductions under Section 80C of Income Tax Act, 1961.

Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP), launched in the year 1988, is one of the most preferred saving schemes from the Indian Postal Department. Post its initial phenomenal success, this savings scheme was discontinued in 2011 as a result of it being misused. It was re-introduced in 2014 after experiencing high demand.

Salient features and benefits of KVP Savings Scheme:

  • What attracts the applicant to this savings scheme is that the principal amount doubles in 118months (9 years & 10 months) at an interest rate of 7.3%.
  • This is available only in the multiples of INR 1,000, INR 5,000, INR 10,000 and INR 50,000, INR 1,000 being the minimum purchase value. It does not have a maximum limit.
  • It can be encashed prematurely after 2½ years from the issuance date.
  • The account of this savings scheme can be transferred from one bank or post office to another, and from one individual to another.

Sukanya Samriddhi Yojana (SSY)

Introduced by the Indian Ministry of Finance, the Sukanya Samriddhi Yojana (SSY) savings scheme was launched by the honourable Prime Minister of India, Mr. Narendra Modi, to financially secure the future of the girl child and support her future ambitions. Salient features and benefits of SSY Savings Scheme:

  • Attracts an annual rate of interest of 8.1% on the principal amount, one of the highest in a saving schemes of its kind.
  • The account for this savings scheme can be opened at any post office or authorised bank in India.
  • Deposits can be made in denominations of INR 100. However, the initial deposit applicable ranges from a minimum of INR 1,000 to a maximum of INR 1,50,000 per year.
  • The maturity term is 21 years from the issuance date and the account holder has to pay into the account for a total term of 14 years.
  • This savings scheme account can be transferred from one bank or post office to another bank or post office anywhere within India.

Atal Pension Yojana

Named after the respected former Prime Minister of India, Shri Atal Bihari Vajpayee, this savings scheme is designed to cater to the welfare of the weaker sections of the society. It is also applicable to individuals, especially those working in the unorganised sectors, who require the financial support from a government-sponsored welfare program. This serves as a robust pension plan for their post-retirement years. Applicants pay a very low premium and enjoy the fruits of a robust and reliable pension plan.

Salient features of the Atal Pension Yojana Savings Scheme:

  • A robust retirement plan that acts as a steady source of income for the weaker sections of the society and people working in the unorganised sector, which does not offer a pension option.
  • Indian citizens between the age groups of 18 years and 40 years are eligible to apply.
  • Involves a very low premium amount, but it has to be paid for a minimum duration of 20 years. However, the higher the premium amount, the higher will be the payable pension amount.
  • It is mandatory for the applicant to hold an active savings bank account.
  • The applicant cannot be a policyholder of any other statutory saving schemes.

Employee Provident Fund (EPF)

The Employee Provident Fund (EPF), introduced by the Employees’ Provident Fund Organisation (EPFO), involves the working Indian population to make a compulsory financial contribution into a Provident Fund (PF) account. This enables them to plan their retirement fund in advance. Alternately, it also offers them the benefit of financial security during unforeseen emergencies as well as planned financial objectives. EPF is one of the most popular and much-favoured government-sponsored savings scheme of a vast majority of the Indian population working in the organised sector.

Salient features and benefits of EPF Savings Scheme:

  • In this savings scheme, the employer and employee contribute 12% of the employee’s monthly salary into this provident fund account every month.
  • The annual rate of interest on the funds accumulated in the EPF account throughout the year is decided by the government and usually ranges between 8% and 12%.
  • The interest is credited to the employee’s account on 1st April of every financial year.
  • The EPFO office generates annual reports through the concerned employer that the employee is employed with, to enable him/her to clear the bearings on the amount accumulated in the EPF account.

National Pension System (NPS)

The National Pension System is a savings scheme that focuses on serving as reliable and secure source of monthly income after retirement. To avail this benefit, employees have to make a small premium payment towards NPS while they are gainfully employed. The lump sum, accumulated throughout the tenure of the scheme, is broken down through an annuity plan, and paid to the applicant every month post-retirement.

Salient features and benefits of NPS Savings Scheme: _ Acts as a secure source of monthly income for retired employees of state and central government organisations, employees of MNCs, and Indian citizens employed in the unorganised sectors.

  • For employees of the central or state government organisations, the applicable deduction from the individual’s monthly income is 10% and an equal contribution from the government.
  • For employees of MNCs or those from the unorganised sectors, NPS is similar to any other long-term saving schemes that benefits applicants after the completion of the pre-determined tenure, as per the terms of the scheme.

Voluntary Provident Fund (VPF)

As suggested by the name of this savings scheme, employed Indian citizens can opt for out of their individual willingness.

Salient features and benefits of VPF Savings Scheme:

  • The applicant willingly contributes up to 100% of their basic salary and dearness allowance towards their respective Employee Provident Fund (EPF), as opposed to the usual 12%.
  • As per the financial year 2013 – 14, applicants were eligible for an interest rate of 8.75% on the accumulated funds.
  • Any activity in an applicant’s VPF will have a direct impact on his/her EPF account too, and vice versa.

Deposit Scheme for Retiring Government Employees

This savings scheme, targeted at the retiring employees of the public sector, is particularly well-known for its hassle-free application and documentation procedure.

Salient features and benefits of this savings scheme:

  • The necessary documents required during the application process to be eligible for this saving schemes are locally payable cheque, DD, etc., along with a certificate from the employer.
  • The interest accrued is payable from the date of deposit to 30th June or 31st December of the same year, and subsequently followed by half-yearly payments on 30th June or 31st December.
  • Withdrawals cannot be made by applicants during the first year of the opening of the account. However, the applicant will be eligible for withdrawals after the completion of one year.

Pradhan Mantri Jan Dhan Yojana

This savings scheme has been launched by the Government of India in 2014, especially for those Indian citizens who do not have a bank account in India. This offers cost-effective solutions related to accessing financial services like banking, remittance, insurance, pension, etc.

Salient features and benefits of Pradhan Mantri Jan Dhan Yojana Savings Scheme:

  • Account holders are eligible for an accidental insurance cover of INR 1 lakh and a life cover of INR 30,000, payable on the death of the beneficiary.
  • Account holders are eligible for an overdraft facility of up to INR 5,000, applicable to not more than one account per household.
  • This savings scheme is tailor-made for Indian citizens below the poverty line, empowering them to make the most of this saving schemes through reinvestments.
  • Maintaining a minimum balance in the account is not mandatory.
  • Account holders can avail interest on their deposits.
  • Account holders can avail seamless access to insurance policies and pension.
  • Beneficiaries of government schemes are eligible for Direct Benefit Transfer.
  • Mobile banking facility further makes this saving schemes user-friendly.

Advantages of Saving Schemes in India

Let’s look at some of the primary benefits of savings schemes in India:

Robust savings schemes

The public and private sector banking schemes from the Government of India offer a robust and secure savings instrument for individuals with varied financial objectives.

Hassle-free services

These saving schemes are customised to offer streamlined and seamless application and maintenance.

Extensive range of savings schemes

The government offers a wide range of saving schemes to cater to the varied needs and financial goals of Indians citizens across different sections of the society. For instance, Sukanya Samriddhi Yojana focuses on the financial support for the girl child, while Pradhan Matri Jan Dhan Yojana is especially designed for citizens below the poverty line.

Long-term financial strategies

The saving schemes are safe investment instruments that enable applicants to meet long-term financial goals like child’s higher education, child’s marriage, retirement plan, etc.

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