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Saving Scheme

When you get into a habit of saving, you enjoy greater security in life and are well-prepared if something unexpected happens in life. There are many financial instruments through which you can save money for your future goals. You can invest money in equity-related or debt-related schemes, or you can invest in fixed deposits, traditional and online savings and investment schemes, etc. We are going to discuss the saving schemes in detail here.

What are Saving Schemes?

Saving schemes are financial instruments launched by the Government of India (or public/private banks) to help you achieve your financial goals over a particular period. Different saving schemes have different purposes, and they vary in their investment horizons, interest rates, and tax benefits. Choosing the best saving and investment scheme online means you have to assess your risk appetite and financial affordability.

The returns from the best saving and investment schemes in India are secured since most of them are backed by the Government of India. It is a low-risk investment option that provides you good returns. The interest rate of saving and investment schemes changes from time to time and is decided by the government. The government revises the rates every three to six months.

Types of Saving Schemes in India

When you decide to invest in saving schemes, there are several options you can choose from depending on your financial needs and your goal duration. Below is the list of different saving and investment schemes you can invest in:

  1. National Saving Certificate (NSC)
  2. Post Office Monthly Income Scheme (POMIS)
  3. Senior Citizen Saving Scheme (SCSS)
  4. Kisan Vikas Patra (KVP)
  5. Sukanya Sammriddhi Yojana (SSY)
  6. National/New Pension Scheme (NPS)
  7. Employee Provident fund (EPF)
  8. Voluntary Provident Fund (VPF)
  9. Pradhan Mantri Jan Dhan Yojana

A. National Saving Certificate (NSC)

It is a government-backed saving scheme designed to offer you guaranteed returns along with a tax-saving option. The scheme has a lock-in period of 5 years, you can invest accordingly in the NSC. Prominent features of NSC include:

  1. Fixed Rate of Interest: If you purchase NSC at a certain rate of interest, the interest rate for you will remain the same during the tenure of your investment. The government reviews and fixes the interest rates once every quarter. At present, the NSC interest rate is 6.8 percent.
  2. Tax-Saving u/s 80C: You can invest and claim tax deduction under Section 80C up to Rs 1.5 lakh. The interest is calculated annually and added to your investment, and the total amount is paid to you at maturity. The gain you receive on maturity is taxable and gets added to your total annual income. The interest rate will depend on your tax slab.
  3. Single or Joint Ownership: You can purchase NSC in your name or open a joint account with your family member. You can also buy NSC in the name of a minor (your children).
  4. Minimum & Maximum Investment: You can start an NSC investment with as much as Rs. 100, while there is no maximum limit for investment.
  5. Premature Withdrawal: NSC does not allow premature withdrawal but you can borrow money by using NSC as collateral.

B. Post Office Monthly Income Scheme

You can think of this saving and investment scheme as a regular savings bank account. The difference is that in this saving and investment scheme you will get higher interest on deposits. It is one of the best investment options for you if you have a low-risk appetite. The process of investment is very simple. Once you invest in the saving scheme you start receiving fixed monthly income in your savings account. Below are important point related to the scheme:

  1. You can open an individual account and invest an amount between Rs 1500 and Rs 4.5 lakh in the scheme.
  2. You can also open a joint account with two or three individuals and invest up to Rs 9 lakh combined.
  3. The amount you invest and the interest you earn on your investment are not eligible for a tax deduction or exemption. You can also open a joint account with two or three individuals and invest up to Rs 9 lakh combined.

Learn more about Postal Life Insurance Scheme

C. Senior Citizens Saving Scheme (SCSS)

The SCSS is designed keeping in mind the unique needs of senior citizens of India (individuals above 60 years of age). Individuals who have retired early or have opted for Voluntary Retirement Scheme (VRS) and between 55 and 60 years are also eligible for this best saving and investment scheme. Features of this scheme are:

  1. You can invest a minimum of Rs 1000 and the maximum limit of investment is Rs 15 lakh.
  2. The investment is for 5 years but there is an option to extend the tenure by 3 years if need be.
  3. If you want to close your account after one year, you have the option to do so without any penalty or deductions.
  4. You will receive interest on your investment on the last day of every quarter.
  5. The amount you invest in SCSS is eligible for a tax deduction, while the interest earned on the investment is taxable. If the interest amount you receive annually exceeds Rs 10,000, the accumulated interest will attract Tax Deducted at Source (TDS).

D. Kisan Vikas Patra (KVP)

You can invest in Kisan Vikas Patra online or by visiting your nearest post office. This saving scheme is very popular since on maturity you receive an amount double of your investment. Features of this saving and investment scheme are:

  1. Your investment is doubled in 124 months, and the interest rate is 6.9% (subject to change). The maturity period may change if the interest rate changes.
  2. The minimum amount you can invest in this scheme is Rs 1000 and there is no upper limit.
  3. Though the investment tenure is 124 months, you have an option for the premature withdrawal but only after 30 months.
  4. The invested amount and interest you earn on that are not eligible for a tax deduction or exemption.
  5. You can use your certificate as collateral to get a loan from banks for a tax deduction or exemption.
  6. You can use your certificate as collateral to get loan from banks.

E. Sukanya Samriddhi Yojana (SSY)

The scheme was launched by the Prime Minister of India to secure the future of girl children in India. You can open an account for your girl child aged below 10 years. Important points related to the scheme are:

  1. Parents can invest a minimum of Rs 250 and a maximum of Rs 1.5 lakh per year for 15 years.
  2. The amount invested is applicable for tax deduction under Section 80C, up to Rs 1.5 lakh.
  3. The tenure of the policy is 21 years, and you have to make payment for 14 years.
  4. You can partially withdraw the money up to 50% after the child attains 18 years if you need money for her higher education.
  5. The interest rate of this scheme is 7.65 percent, effective 1 April 2020.
  6. You can invest in a maximum of 2 girl children in Sukanya Samriddhi Yojana.

Learn more about Sukanya Samriddhi Yojana

F. National Pension Scheme (NPS)

NPS is an initiative by the Central government that aims to give a reliable and secure source of monthly income after retirement. National Pension Scheme is considered one of the best online saving and investment schemes in India. You can easily register online by visiting the portal and open an account using your AADHAR details. The amount of contribution in this saving and investment scheme is from your monthly salary. Your employer contributes an equal amount equal to your contribution.

  1. Any Indian Citizen including NRIs can invest in NPS Tier-I (default) account, except for the defense personnel.
  2. You can invest any amount in the NPS Tier-I account. However, the tax benefit is available only up to the following limits:
    • If you are a central government employee, the contribution will be 14%
    • For other employees, the contribution is 10%
    • Self-employed investors can invest up to 20% of their annual income
    • Employer's contribution up to the limits given above is exempt from tax, anything more will be taxable as salary
    • Employees and self-employed investors can invest up to Rs. 50,000 more, above your respective limits, and claim additional tax-deduction.
    • Upon retirement, you can withdraw a maximum of 60% of your total corpus as a lump sum, and it will be tax-free. The remaining 40% must go to an annuity plan for a monthly pension income after retirement.

G. Employees Provident Fund (EPF)

EPF is a long-term saving scheme that offers you financial security post-retirement. The employer and employee contribute 12% of the monthly salary in the PF account. The interest rate in this scheme is 8.5%. Your contribution to this scheme is eligible for tax deduction under Section 80C.

Where does your Monthly EPF Contribution o?

Your monthly EPF contribution is divided under the following heads towards different objectives:

  1. 3.67% to Employees Provident Fund (EPF)
  2. 8.33% to Employees Pension Scheme (EPS)
  3. 0.5% to Employees' Deposit Linked Insurance (EDLI)
  4. 1.1% & 0.01% towards the respective Admin Charges for EPF and EDLI

H. Voluntary Provident Fund (VPF)

With this scheme, you can make an additional contribution of up to 100% of your basic salary and dearness allowance over and above your contribution to the EPF. You get an interest rate of 8.5% (at present) on your investment in this scheme.

Who can Invest in VPF?

Only salaried employees are eligible for VPF contributions. This option is usually available to the employees of specific institutions or those who receive their salaries through a specified salary account.

Benefits of Investing in VPF

  1. Safe investment
  2. Fixed rate of interest
  3. Easily transferable to another employer
  4. Tax-deduction up to Rs 1.5 lakhs of contribution

Withdrawal Facilities

  1. Tax-free partial withdrawals permitted after 5 years of investment
  2. Loan facility available from the account in case of emergency
  3. You can withdraw the money from this account for
    • Medical bills
    • Child’s higher education or marriage
    • Home purchase or construction

I. Pradhan Mantri Jan Dhan Yojana

This is a saving scheme tailor-made for people below the poverty line. The account holder can make use of the scheme for reinvestment. It is highly suitable for people below the poverty line because they don't have to maintain any minimum balance in their accounts. As part of this saving and investment scheme, they receive accidental insurance of Rs 1 lakh and a life cover of Rs 30,000.

Benefits of PMJDY

  1. Zero balance savings account
  2. Debit card facility
  3. Interest on deposited money
  4. Accidental insurance of Rs. 2 lakhs
  5. Overdraft facility for eligible investors
  6. Receive the benefits into your account for central government’s social security schemes and subsidies

Advantages of Investing in Best Saving Schemes Online in India

Below are some of the advantages of investing in saving schemes:

  1. Safety: Most saving schemes are backed by the government of India. The returns are guaranteed and secured.
  2. Easy to Use: These schemes are designed and customized to offer you seamless and streamlined application and maintenance.
  3. Wide Range of Services: There are different types of saving schemes for your different needs - tax savings, retirement, support education of a child, etc.

Which Saving Scheme has the Highest Interest Rate?

Below are the interest rate offered by different saving schemes:

Scheme Interest Rate offered
National Scheme Certificate 6.8%
Post Office Monthly Income Scheme 6.6%
Senior Citizens Savings Scheme 7.4%
Kisan Vikas Patra 6.9%
Sukanya Samruddhi Yojana 7.6%
National Pension Scheme 5 to 12%*
Employees Provident Fund 8.5%
Voluntary Provident Fund 8.5%
* Based on the historical performance of the funds and choice of assets, the returns are not guaranteed

From the above table, you can conclude, the interest rate of interest is offered by EPF and VPF schemes.

Difference Between Saving and Investment Schemes & Saving Plans

The best saving and investment schemes in India, as we have seen, are financial instruments that help you achieve your financial goals by investing in instruments that give fixed and guaranteed returns. On the other hand, saving plans are a life insurance plan that also helps achieve your short and long-term goals and provides insurance coverage.

Some of the best online saving and investment plans in India are offered by life insurance companies including Canara HSBC Oriental Bank of Commerce Life Insurance.

Following are the differences between the two:

Feature Saving Schemes Saving Plans
Purpose Secured returns Good returns with life cover
GOI Backing Yes No
Risk Level Low Depends on the type of product
Investment Tenure Short to long term Long term
Returns Low to medium Medium. Depends on the product
Fixed Returns Yes Not always
Life Insurance No Yes

How to Find the Best Saving Scheme for Investment?

Below are three easy and quick steps you can follow to find the best online saving and investment scheme in India:

  1. Understand your purpose: The first step is to understand the purpose of your investment and define it in these terms:
    • How much you are investing?
    • When do you want to receive the returns?
    • Do you need tax benefits on the saved money?
  2. Shortlist the saving schemes in line with your purpose: Based on the amount of investment and time you have before you need the money for a goal, you can short-list different saving schemes. The purpose should be to invest once and continue with the same saving scheme until you need the money back.
  3. Aim for Maximum Growth: Depending on the time you have and your risk appetite, you can choose to invest in either equity or fixed income (debt) schemes. If your purpose is tax-saving as well, you can only choose out of those schemes which offer tax benefit on the invested amount. E.g., NSC, PPF, ELSS, etc. but not KVP or POMIS.

Learn how you can obtain great benefits from small saving schemes

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Frequently Asked Questions (FAQs)

Small saving schemes are investment plans launched by GOI to promote savings and provide a venue for small savers to grow their money. These schemes are commonly offered by all Post Office branches and scheduled nationalized banks. These schemes usually do not deduct TDS on invested money.

Senior Citizen Savings Scheme (SCSS) and PPF are two of the best saving schemes for 60+ investors. SCSS allows lump sum investment of retirement benefits up to Rs. 15 lakhs for retirees aged 55 years. Both schemes offer a safe return on investments and tax savings on invested money.

Any Indian resident over 18 years of age can open a PPF account. There is no maximum age limit to open a PPF account which means even senior citizens can invest in PPF.

Yes, most savings schemes are transferable including NSC. You can transfer your NSC account from the current bank to any other bank (or post office) across India. Only when your NSC account has reached maturity, you are not allowed to transfer your account.

Yes, the interest you receive on NSC is taxable. Your investment in NSC is deductible under Section 80C of the Income Tax Act. The interest you receive every year is re-invested, and it comes under Income from Other Sources and hence taxable.

Employees saving plans are offered by an employer to their employees in which they can invest a part of their income for their short and long-term goals.

Ministry of Finance announces PPF interest rates every quarter. For the quarter of April-June 2021, the PPF account has an interest rate of 7.1% per year.

No, the interest rate may change from time to time for these schemes. Usually, the government updates the interest rate every 3 to 6 months.

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