Whether you are looking to buy the best saving plan for your new born baby, or you want to leave a legacy for your grandchildren, putting away money in a saving and investment plan is a great way of boosting your wealth. A lot of experts may also recommend you to diversify your investment portfolio. Remember that a balanced investment portfolio must contain a mix of equities, government and corporate bonds, property and cash, saving plans that assure returns.
When searching for a saving plan, we tend to find the best one as per our financial requirements. We consider plans the best when we get sky-high returns as quickly as possible without losing the capital investment. However, when it comes to “High-return and Low risk” saving and investment product, you are not likely to find any such product to invest in. So, rather than considering the best saving plan to be an investment option that gives high return with no risk, you must start searching for plans that guarantees returns.
You may find saving plans that have high risk but they can generate higher inflation-adjusted returns in the long term. To help you find the best saving plan for your investment needs in 2021, we have created this all-inclusive guide. Let us first understand, why do you need to save and invest?
Why Should you Buy the Best Saving Investment Plans?
We generally look forward to buy the best saving plan or any other form of investment in the hope of growing our capital. As an investor, you may want plans that help in generating income to support your financial needs. While some other investors may need a saving plan that helps them in building a retirement corpus for a happy and carefree retirement. The main reason people decide to invest their money may vary according to their personal and financial goals and aspirations. However, the most common objectives when it comes to investments are:
One of the most fundamental reasons for investing money is to preserve capital. Some of the best saving and investment instruments act as a way to park funds and keep them safe. These include government bonds and fixed deposits; the returns may be lower here, but so is the risk.
A lot of investors also put their money to grow while aiming to earn more through it. This is achieved through investment options like mutual funds and commodities. The initial amount to be paid and the associated risk are higher with these options, but so are the returns.
Sometimes, investments are also made to ensure a permanent or long-term source of steady income. For example, you may consider investing in the stocks of a company that pays regular dividends to its investors.
4. Tax Benefits
The Income Tax Act of 1961 offers some tax benefits wherein deductions are made from the payable taxes when investments are made in Public Provident Fund (PPF), Equity Linked Services Scheme and also with savings cum insurance plans.
5. Future Planning
Generally, people prefer investing a part of their money during their active working years towards a retirement scheme or fund. So that once their working years are over, they can continue to be self-reliant. There are some saving plans that work best to build a retirement corpus by generating an additional stream of income.
6. Short-term Financial Goals
Sometimes, people have short-term financial goals that may include buying a car or the downpayment of a home loan. To achieve these goals, people invest in short-term plans or acquire commodities that have a higher chance of value increment resulting in the generation of considerable returns in the short-term. For example, people invest money to buy precious metals like gold and silver.
As now we are clear of the objectives that may lead one to search for the best saving and investment plan, let us understand the types of saving and investment options that are available.
What are the 10 Best Saving Plans in India?
Here is the list of the best saving plans in India
1. Mutual Funds
2. National Savings Certificate
3. Senior Citizen Savings Scheme
4. Recurring Deposits
5. Post Office Monthly Income Scheme (MIS)
6. Public Provident Fund (PPF)
7. KVP (Kisan Vikas Patra)
8. Employee Provident Fund (EPF)
9. Sukanya Samriddhi Yojana (SSY)
10. Bank Fixed Deposits
Types of Saving & Investment Schemes Available in India
There are numerous ways in which you can invest your money. One way is through the diversifying your portfolio of assets. It may include investment in precious metals like gold and silver; buying stock in companies, which may or may not pay dividends to their investors; and realty, as land is considered an asset in India.
Learn how to adjust your investment portfolio for post COVID world.
Another way is through set saving plans that are specifically designed to help you as an investor in achieving your desired return value to the extent that it is possible within the bounds of your predetermined risk appetite and spending capacity.
There are two kinds of investment plans: Short-term and Long-term investment plans.
What are the Best Short-term Investment Plans?
These investment options are highly liquid. You can invest your funds for a shorter duration of time. This can be anywhere between 3 months to 3 years. The most common purpose for choosing short-term saving and investment plans are safety of funds and generation of wealth for short-term financial goals.
Some of the best short-term investment plans that can be used for savings are listed below:
1. Mutual Funds
Mutual Funds are large investment funds that are made by pooling the money from thousands of investors. The money is invested in securities such as equity stocks, bonds, etc. The total amount of a mutual fund is divided into units and these units are assigned to you based on your contribution.
The mutual fund is managed by a professional fund manager. They decide where the money will be invested. With a mutual fund, you can achieve diversity and get the advantage of expert management.
Liquid Mutual Funds
Liquid funds or ultra-short-term debt funds invest a majority of their AUM into short-term debt securities or money market instruments. Short-term debt or money market securities are those fixed income instruments that are maturing within the next 365 days.
The maturity period of securities this mutual fund holds ranges from overnight to 364 days. Because of the ultra-short maturity of the debt securities, they are considered the least risky. Thus, allowing you a very short-investment period with almost stable returns.
Returns from liquid mutual funds average the savings bank rate of 5 to 7% p.a. However, if you can hold the investment for more than 36 months, you can avail of the indexation benefit on the capital gain.
Ideal Investment Tenure
Liquid mutual funds are best if you need to park a large corpus for a few months to less than three years. This is because these funds will offer better growth to your money than the savings account.
2. Debt Mutual Funds
Debt mutual funds are riskier than liquid funds in the short run and less risky than equity and balanced mutual funds. However, these funds also offer better long-term returns than liquid mutual funds. It predominantly invests in corporate or government bonds.
These are known to generate fixed returns. The risk involved is low, and returns can range from 7% to 10%, making it the ideal option for short-term investment.
Ideal Investment Tenure
Debt funds are a perfect investment for you if you want to ensure the safety of your capital and can invest for at least 36 months. After this holding period, the capital gain will be eligible for indexation benefit, instead of being taxed at the normal tax slab rate.
3. Treasury Securities
Treasure Securities, commonly known as Treasure Bills are a safe short-term investment that is introduced by the government. A Treasury Bill is thus, a security backed by the government which offers high liquidity.
The risk is low and virtually non-existent due to govt trust and investment in the money market. The returns are also decent. The tenure of Treasury Securities can be for as low as 91 days and are majorly issued for less than 1 year.
However, the amount received as returns will be in proportion with the tenure.
i. These bills are generally issued at a discount and redeemed at par
ii. The minimum amount you have to invest to own a treasury bill is Rs 25,000
iii. The yield of a bill can be calculated through a formula
Y= (100-P)/P * [(365/D)*100]
P – The discounted price
D – Tenure of treasury bill purchased
4. National Savings Certificate (NSC)
NSC is a government-backed, tax-saving, short-term scheme that can be purchased from any post office. Tax benefits can be availed for an NSC under Section 80C of the Income Tax Act. That is, you can avail of a tax deduction of up to Rs 1.5 lakhs towards your investment.
If you are an adult or a minor above the age of 10 then you can open an NSC account under your name. Also, you can open a joint account with 2 more persons as well. That is, 3 people can open a joint NSC account. Currently, the NSC VIII issue is available for investment.
i. The current rate of interest is 6.8% per annum (last updated on 25th Jan 2022), compounded annually
ii. It has a tenure of 5 years
iii. You need to invest a minimum of Rs 1000 to keep your account active. There is no maximum limit
iv. NSC can also be used as a security to avail loans
v. Withdrawal and transfer of account are allowed on the death of the partner
If you are planning to buy the best saving plan, you must consider and compare all the available options.
5. Recurring Deposits
This type of saving plan, also known as RD is the safest and one of the best saving schemes. The investors, in a recurring deposit, can make payments in the form of monthly instalments, contrary to fixed deposits wherein the lump sum is invested. RD is a low-risk option for short-term saving and investment.
RD is flexible in terms of the duration of the account and the amount you want to invest. It helps build a savings habit amongst the individuals. You need to submit the details of your bank account, your ID proof, and the relevant application form to open your RD account.
i. You can open a recurring deposit account for as low as Rs 500. However, this amount depends on the banks.
ii. Post-Offices have a minimum limit of just Rs 100
iii. The rate of interest of an RD of 1 year varies in the range of 4.5%-5.5%
iv. Senior citizens are offered an additional rate of interest
v. The period can vary from 3 months to as long as 10 years
6. Post-Office Time Deposits
Post-Office Time Deposits (POTD) is an investment scheme by Indian Post. It is a popular short-term scheme in rural and remote areas, and its tenure can be chosen from options of one year, two years, three years, and five years. It is similar to a Bank Fixed Deposit in many ways.
The interest earned (subject to regular revisions. Presented rate as of 25th Jan 2022) as per the years are as follows:
a) After 1 Year: 5.5% p.a
b) After 2 Years: 5.5% p.a
c) After 3 Years: 5.5% p.a
d) After 5 Years: 6.7% p.a
Any number of accounts can be opened by you under the time deposit scheme.
i. The interest rates mentioned above are calculated yearly every quarter.
ii. The minimum amount you need to invest is Rs 1000
iii. This saving scheme is eligible for tax deductions u/s 80C of the Income Tax Act for the 5-year account
i. Withdrawal is not allowed for the 6 months following the deposit
ii. If you withdraw between 6 months to 1 year of deposit, you will face a deduction of interest and will be charged on the rate of savings account
|0-6 months of deposit||Withdrawal is not allowed for the 6 months following the deposit|
|Between 6 months to 1 year||You will face a deduction of interest and will be charged on the rate of savings account|
|After 1 year (in case of 2 yr+ accounts)||2% deduction from the TD interest rate|
7. Bank Fixed Deposits
Fixed deposits are also considered to be a form of investment, wherein you deposit a fixed amount, i.e., in a lump sum with a bank for a fixed amount of time and in return get a set percentage of that amount as interest. Although the returns in this are quite low, so is the risk. In an FD, you are assured of the returns. Thus, you know how much you will be getting as interest. This is why this investment is very popular despite average to low returns.
What are the Best Long-term Investment Plans?
Long-term Investment Plans allow you to invest your funds for a longer period. The risk factors for long term investment plans are usually higher than short-term investment plans, but so are the potential returns. However, these risks can be minimized by conducting proper research before investing. The major long-term plans include:
1. Unit Linked Insurance Plans (ULIPs)
A ULIP is an integrated plan which gives you the benefits of both investment and insurance plans. You can pay the premium on a monthly or annual basis. This is an ideal option for an investor who is looking for a secure earning plan for the long term.
ULIPs use a part of your annual premium to provide the life cover while the other goes to the funds of your choice. ULIPs are considered to be one of the best saving plans that offer life cover with an option to grow your wealth:
i. ULIPs have a lock-in period of 5 years
ii. Partial withdrawals are allowed after this lock-in period
iii. You have the freedom to decide in which fund your money will be invested
You can choose from
- Hybrid funds
iv. ULIPs are eligible for tax benefits u/s 80C as well as section 10(10)D of the Income Tax Act 1961
In Canara HSBC Oriental Bank of Commerce Life Insurance’s Invest 4G, not only do you get all these benefits but other exciting features as well.
You get to choose from 4 automatic portfolio management strategies, free fund switches, tax-free partial withdrawal. You also have an option to get covered till the age of 99. Also, there is a premium funding benefit option that ensures your policy continues even after your death.
Learn about these 5 reasons you should invest in ULIPs.
2. National Pension Scheme (NPS)
NPS is a government-notified pension scheme for individual taxpayers. This retirement scheme is open to all individuals belonging to the age group of 18-60 years. However, an extension to 70 is possible for the maximum age. This is one of the best saving schemes that allow you to invest in different instruments like debt and equity or both.
The final pension amount you get is the returns from these investments. You also have the option of partially withdrawing funds from your account in case of emergencies:
- Since NPS is a saving scheme that is linked with the market, its return is not fixed and depend on the performance of your fund
- The past returns of this scheme vary in the range of 8%-10%
- Once invested, you need to stay invested in the scheme till the age of 60
- Tax benefits are available under both section 80C and 80CCD
- Premature withdrawal is allowed in NPS but is subject to certain conditions.
- If you have spent 3 years in the scheme then you can withdraw 25% of the sum for special considerations
- You can withdraw a maximum of 60% of your funds after you retire. This amount is tax-free. The remaining 40% needs to be invested in PFRDA run scheme.
3. Public Provident Fund (PPF)
Popularly referred to as only PPF, this is one of the oldest and the most trusted investment and savings plans in India. This government-backed savings plan comes with a sovereign guarantee. Thus, offers you a surety of returns.
You can open a PPF account in any bank having a PPF facility as well as a post office. You must be an Indian citizen over the age of 18 to enrol in PPF. If you are a minor, you can open your account under the supervision of your guardian.
i. It offers you an attractive interest of 7.1% per annum (last updated on 25th Jan 2022), the returns are compounded annually
ii. The maximum time you can invest in PPF is 15 years
iii. The Minimum you have to invest in your PPF account is Rs 500
iv. You cannot invest more than Rs 1.5 lakhs in a single year
v. You can even withdraw your money partially after 5 years
vi. This investment is also eligible for tax benefits under section 80C of the Income Tax Act 1961
At the time of maturity, you can either take the amount in lump-sum and close the account or can extend it by another 5 years.
4. Equity Linked Savings Scheme (ELSS)
ELSS funds are eligible for tax exemption under Section 80C for investments up to 1.5 lakhs. It is the only mutual fund scheme that qualifies for tax benefits.
ELSS funds are pure equity investments. However, since ELSS invests mostly in large cap or public sector companies, they are safer than many other equity mutual funds. There is a strict lock-in period of 36-months, which applies to every deposit in a particular account.
Hence, you cannot make a withdrawal under any circumstances until the lock-in period is over.
However, you can mitigate the risk involved in ELSS by staying longer. The longer you are invested in the scheme, the more are the chances of you getting higher returns.
5. Equity Mutual Funds
Equity mutual funds invest up to 95% of their AUM in equity stocks and related securities. Thus, depending on their portfolio investment their risk varies from high to very high. Similarly, the returns from these funds also vary a lot.
While investing in equity funds, you should always use proven methods to mitigate your risk. Two such methods are:
- Invest a fixed amount regularly
- Stay invested for a longer period
Mitigating risk automatically improves your chances of growth and enjoy better returns from these funds in the long run.
6. Guaranteed Savings Schemes
If you do not possess a high-risk tolerance and would rather be happy if you are assured of the returns, then you should take note of the guaranteed saving schemes.
Considered by many a more secure alternative to ULIP, Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Saving Plans offer fixed and guaranteed returns with low risk. That is, you are assured of the returns on maturity.
In this plan, you are given full freedom to choose the duration and the payment method. The period for the maturity of these schemes varies from 10 to 20 years. You can also claim tax benefits for investments in Guaranteed Saving Plans under Section 80C. You are also given facilities such as premium booster
Saving plans that offer guaranteed returns are often considered to be the best by investors. Like ULIP, Invest 4G, this plan also includes premium funding benefits.
7. Post Office Monthly Income Scheme (MIS)
This is one of the best savings schemes in India. This is a government-backed scheme with low risk and gives steady returns.
In this scheme, you have to open an account with a post office and invest regularly. You will earn regular interest on your investments. Thus, this saving plan is perfect if you are in search of an investment that can give you stable but regular returns.
The duration of this scheme is of 5 years. The current rate of interest in POMIS is 6.6% per annum (last updated on 25th Jan 2022). You will receive interest every month.
To open an account under the POMIS scheme, you need to perform the following steps
i. Fill out the POMIS application form
ii. Get signature from the nominee, attach your ID, address, and passport size photograph with the form
iii. Make the initial deposit via check. You need to invest a minimum of Rs 1000
iv. Wait for the verification
You can open an account if you are an Indian citizen and are above the age of 18 years. You can also be eligible to open an account if you are a minor aged above 10 but you will require a guardian for this.
The maximum investment is Rs 4.5 lakh in a year. It can be increased to 9 lakhs if it is a joint account.
8. Kisan Vikas Patra (KVP)
This is also a safe savings plan that is backed by the government. Though at the start it was mainly for the farmers, now it is open to other sections of the society and is seen as a very attractive investment. If you are an adult Indian citizen, you can opt for this saving plan.
This is one of the best saving plans in India as it offers to double your money in a time frame of 124 months, i.e., in 10 years and 4 months.
Thus, this scheme is suitable if your goal has a long-term horizon and you are looking to park your excess funds in a safe place.
i. This plan offers a rate of return of 6.9% per annum (last updated on 25th Jan 2022)
ii. The minimum amount you can invest is Rs 1000, and you can invest as much as you want, there is no maximum limit in KVP
iii. You can withdraw prematurely after 2.5 years (30 months)
iv. You can use your KVP as a security when you opt for a loan
This plan is not eligible for tax benefits u/s 80C of the Income Tax Act. TDS is also not applicable to this scheme.
9. Employee Provident Fund (EPF)
This saving scheme was introduced by the government to inculcate a habit of savings among the working class so that they can create a good corpus by the time of their retirement. This scheme is regulated by the EPFO.
If you are covered in the EPF scheme, you will be mandatorily contributing a part of your salary to this fund. Your employer will also contribute to your EPF account.
Investing in EPF is very beneficial for long-term goals. It regularly helps build discipline in savings and will create a corpus that you can use to cater to your expenses after you retire.
i. The current rate of interest rate in EPF stands at 8.5% per annum (last updated on 25th Jan 2022)
ii. The interest is credited yearly
iii. In this scheme, you and your employer both contribute in the range of 8-12% of your basic salary
iv. If you are a woman, then you need to contribute only 8% for the first 3 years of employment
v. This scheme is eligible for deduction under section 80C of the Income Tax Act 1961
10. Sukanya Samriddhi Yojana (SSY)
SSY was introduced by the government in the year 2015 specifically for the betterment of the girl child. This scheme was a part of the ‘Beti Bachao Beti Padhao’ initiative. Sukanya Samriddhi Yojana was introduced with the main objective of ensuring a financially secure future for the girl child.
Thus, if you are a parent of a girl child and want to save money with good returns, you must consider investing in SSY. If you want to open your account under Sukanya Samriddhi Yojana Scheme then you can do so with the help of a list of banks or any post office as well.
To open this account you will need to submit the birth certificate of the girl child along with the application form and your ID proof:
i. The rate of interest of your SSY account currently stands at 7.6% per annum (as of 25th Jan 2022)
ii. You can open an SSY account for up to two girls
iii. It has a tenure of 21 years till the date of opening
iv. The minimum amount you have to deposit is Rs 250
This account matures after your daughter turns 21. You have to deposit for at least 15 years before maturity.
Frequently Asked Questions
Saving schemes are a type of investment option that helps you to save regularly and create a corpus to meet your future needs and goals. There are many saving schemes available in India and are offered by banks, post offices as well as other financial institutions. Each of the saving plans differs in terms of return, duration, and investment options. You can choose the best saving plan according to your preference and risk-taking abilities.
Whether your saving plan is eligible for tax-benefit or not depends on the type of scheme you have invested in.
Some of the saving schemes that are also eligible for tax deductions under section 80C of the Income Tax Act 1961 are
a) Public Provident Fund (PPF)
b) Mutual Funds (only ELSS)
c) Employee Provident Fund (EPF)
d) Sukanya Sammriddhi Yojana (SSY)
e) National Savings Certificates (NSC)
There is no single best-saving scheme available in the market. All of these plans have their own set of features and can fulfil different purposes. Look for a plan that suits your budget, matches your needs and risk-taking abilities.
Some of the best saving schemes in India are:
a) Mutual Funds
b) National Savings Certificate (NSC)
c) Post Office Monthly Income Scheme (MIS)
d) KVP (Kisan Vikas Patra)
e) Public Provident Fund (PPF)
f) Employee Provident Fund (EPF)
g) Sukanya Samriddhi Yojana (SSY)