Savings is the most important step once you start earning. The practice of saving gives a sense of security as it tends to make you financially independent. With the help of a money-saving plan, an individual can get financial gains over a particular time. There are schemes offered by various institutions like a public or private sector bank, the Government of India, and other financial institutions.
The interest rate of the schemes offered by the Government or the banks is decided by them and are updated periodically. The savings acquired from these saving plans can be used for emergency purposes, higher education or children's education, marriage, to lessen debts, and more.
Importance of investing in saving schemes
Here's why an individual should invest in money-saving plans:
Since holding onto liquid money might lead to excess spending, it is a wise decision to deposit the extra money from your hard-earned income in saving schemes.
- Retirement funds
With time, the money that was deposited in the savings schemes will help you reap the benefits in the form of a retirement corpus. Once retired, you will be able to lead a comfortable life as the money saved would have become a huge corpus.
- Long-term benefits
Long-term investments will always reward you with great returns as most schemes calculate interest using the compound interest concept. In money-saving plans, the lock-in period can range from a minimum period of 5 years to a maximum period of you reaching the age of 60 years. On maturity, you will end up with a huge sum by receiving interest on interest due to the compounding of returns that are added with long term savings.
- Tax savings
A lot of saving schemes offer various kinds of tax benefits such as tax exemption, deduction, or both. Under Income Tax Act 1961, Section 80C, upon the investment of up to Rs.1.5 lakh, you get qualified for a tax deduction. There are also saving schemes that offer tax exemption on the investment, interest ensued, and the maturity amount.
- Avoid unwanted expenses
Instead of spending the money earned on less important items or matters, saving up the excess money after dealing with the mandatory expenses in the best saving plan will help avoid unwanted expenditure.
Types of saving schemes in India
In India, several saving scheme options are available. Most of these are backed by the Government, while the others are supervised by the RBI and SEBI. Besides, these schemes provide some or the other kind of tax benefits such as tax deduction or tax exemption. Here are some of the best saving plans:
1. Equity-Linked Savings Scheme (ELSS)
ELSS is a mutual fund and is also known as tax saving funds. Under Section 80C, the investments made in this money-saving plan get tax deductions up to Rs.1.5 lakh. This investment follows a compulsory lock-in period of 3 years. Like capital gains, the returns on the redemption of the investments are taxable. There is a tax exemption of up to Rs. 1 lakh on these gains, and on exceeding this amount, a tax of 10% is levied.
ELSS savings have an equity market exposure of underlying assets in a debt and equity ratio. Higher returns are provided by the equity portion, and debt offers a buffer against uncertainty. In the long run, the scheme provides higher returns, exceeding five years. A SIP (systematic investment) offers investment stability and earns higher returns, making this one of the best saving plans. At Rs.500, the minimum investment begins.
2. Fixed deposits (FD)
It is known that fixed deposit accounts are hassle-free and the best saving scheme in the market. For a given duration, you deposit any amount that is convenient for you, earning interest as per the rate applicable on the date of deposit. The method provides flexibility in terms of duration and interest pay-out rate.
The interest given on an FD account is even higher than the interest offered on a bank savings account. You may opt to break the FD or even take an overdraft credit on it if you need the money before the maturity date. You will have the option at the end of the tenure of reinvesting the interest to receive a higher lump sum. The interest is taxable, and payments above Rs.40,000 may be subject to TDS.
3. Public Provident Funds (PPF)
The PPF is a long-term tax-free money-saving plan supported by the Government. Under Income Tax Act Section 80C, the funds deposited with your PPF account will be tax deducted. The interest gained on such savings is tax-exempt as well. A PPF account can be created at your nearest bank or post office.
The money will be locked in for 15 years and can be renewed after the expiration of the lock-in duration in periods of five years. Returns will be calculated based on compound interest at the rate of 7.1% p.a. It is possible to make a minimum yearly investment of Rs.500. Up to Rs.1.5 lakh can be invested per annum.
4. National Savings Certificate (NSC)
Another government-backed saving scheme, the National Savings Certificate, offers assured returns along with a tax-saving alternative. You can invest in this plan at the nearest post office. For the scheme, the lock-in duration is five years. Once every quarter, the Government checks the interest rate of the scheme and makes decisions on it. However, once you buy the certificate, the interest rate does not alter during your term.
Under Section 80C, tax deductions on the investment can be claimed up to Rs.1.5 lakh. Presently, the interest rate of 6.8% p.a. is applicable. Interest will be accumulated annually and paid only upon maturity. The interest accrued is taxable upon maturity and must be added to the gross annual income. Under Section 80C, the interest reinvested and multiplied is eligible for a tax deduction.
Apart from these government-related saving schemes, there are also schemes offered by private banks and financial institutions, one such institution being Canara HSBC Oriental Bank of Commerce Life Insurance. Here are some of the best saving plans offered by them:
5. Invest 4G Plan
You work very hard to make your dreams come true for various reasons such as having a comfortable future, providing a secure life for the family, setting up that café you have always wanted to, and more.
Thus, financial forethought and financial security for your near and dear ones have to be up to the mark. This plan does the required by providing life insurance cover to safeguard your hard-earned income and secure your family in case of your untimely passing. This plan is a Unit Linked Individual Life Insurance Savings that gives you the liberty to customize as per your objectives and differing obligations.
6. Grow Smart Plan
This money-saving plan comes under the whole life Unit Linked Insurance Plan and exclusively provides an insurance cover for you all through your life. Since life is all about making the best bet, you tend to worry and ponder over your choices.
This plan has been designed, keeping in mind the benefits you and your spouse should receive all through your retirement.
- India multi-cap equity fund: Helps you receive capital gain in the long-term with the help of equity investments by investing in a varied portfolio of Small Cap, Mid Cap, and Large Cap companies.
- Whole life protection: Get life insurance for your entire life.
- Flexible-premium payment term: Depending on your payment capacity, you can choose a term of 10 years or more.
- Choose life cover: Depending on your protection needs, you can choose the most suitable life cover.
- Switching or premium redirection: According to your convenience, you can switch your money from different funds with the help of premium redirections.
- Partial withdrawals: In case of emergency, you can withdraw your money through partial withdrawals but after 5 years.
- Increase or decrease of sum assured: Based on your changing needs, you can change your sum assured depending on your protection needs, allowing you to increase or decrease the Sum Assured.
7. Group Term Edge Plan
It is because of the employees who work towards making an establishment successful, making them the most valuable assets of that establishment. To help them concentrate on the tasks at hand and protect their affairs, you must safeguard them from a variety of risks. This plan is a yearly continual group term insurance plan. Based on the selection of the coverage option, members will be covered for accidental events of terminal illness and/or critical illness.
This plan allows you to select any one from the following coverage options:
- Option 1: Death Only
- Option 2: Death and Terminal Illness (TI)
- Option 3: Death, Terminal Illness (TI), and Critical Illness (CI)
These are some of the widely-preferred and best saving schemes in India. Start saving up early with the help of these schemes to have a comfortable life after.