Saving Scheme Types, Benefits & Comparisons

Government-Backed Saving Schemes:

• Public Provident Fund (PPF): The Public Provident Fund (PPF) is one of India's most trusted and secure investment options, offering both tax benefits and long-term growth. Contributions to the PPF, along with the interest earned, are tax exempted under Section 80C of the Income Tax Act. The scheme can be easily opened at banks or post offices, with a mandatory 15-year tenure, extendable by an additional 5 years. To open the PPF account, you can contribute a minimum of ₹500 and a maximum of up to ₹1.5 lakh annually.
  
• National Savings Certificate (NSC): The National Savings Certificate (NSC) is a popular, government-backed investment scheme in India that offers guaranteed returns and tax benefits. With a 5-year tenure, the scheme is available at post offices, and the interest rate is set quarterly by the Indian Government. The minimum investment is ₹1000 with no limit on the maximum amount. Contributions to the NSC qualify for tax deductions under Section 80C of the Income Tax Act.
  
• Post Office Savings Account: A Post Office Savings Account offers a low-risk investment option with easy access to funds. Opening an account for any of the savings schemes at the post office is straightforward and quick, making it accessible for many. It provides a high interest rate, making it a great choice for individuals looking for a secure, liquid savings option. Features like security, easy accessibility, and government-backed assurance make the Post Office Savings Scheme attractive for conservative investors looking to grow their savings.
  
• Post Office Recurring Deposit (RD): The Post Office Recurring Deposit (RD) lets you deposit a fixed sum every month for a specified tenure, earning a fixed rate of interest. The minimum investment amount starts at just ₹10, with a flexible tenure option ranging from 6 months to 10 years to choose from. Interest rates typically range between 6% and 9%, depending on the bank or post office. The interest is compounded quarterly and credited to the individual's RD account. While premature withdrawals are not allowed, they can close their account before maturity with a penalty. Moreover, senior citizens can enjoy the benefits of high interest rates and tax benefits, and by submitting the 15G/15H form, they can avoid TDS deductions on their interest. 
  
• Post Office Monthly Income Scheme (POMIS): POMIS is a government-backed, low-risk investment option designed to provide steady monthly income. The maturity period under this scheme is 5 years (60 months), during which the invested amount cannot be withdrawn. The minimum investment is ₹1,000, with higher investment limits of ₹3 lakh for minor accounts, ₹9 lakh for individual accounts, and ₹15 lakh for joint accounts. Additionally, POMIS allows easy transfer of investments if you change cities, ensuring your funds and interest follow you to a new post office.
  
• Kisan Vikas Patra (KVP): KVP is a savings scheme that allows farmers and individuals to double their investments over a specified tenure. The minimum investment required is ₹1,000, with no maximum limit. One of the unique features of the scheme is that the invested amount doubles in 112 months. Investors can add nominees to their KVP account, and the certificate is transferable between individuals and post offices. Additionally, the KVP certificate can be encashed after 30 months from the date of issuance, providing flexibility for the investors. The Kisan Vikas Patra is a secure option for long-term savings and is backed by the Indian government.
  
• Senior Citizen Saving Scheme (SCSS): The SCSS savings scheme is specifically designed for senior citizens aged 60 years or above. It has a 5-year tenure and offers an attractive and higher interest rate than regular savings accounts. It provides regular income through quarterly interest payouts.
  
  The minimum investment required is ₹1,000, with a maximum limit of ₹15 lakh. Investors can transfer their SCSS accounts between post offices and banks for added flexibility. Additionally, as per Section 80C, contributions to the scheme are eligible for tax deductions.

• Sukanya Samriddhi Yojana (SSY): The Sukanya Samriddhi Yojana (SSY) is a savings scheme aimed at encouraging parents to save for their daughters' education and marriage. The scheme offers high interest rates and tax benefits, making it a great choice for long-term savings.
  
  The minimum annual deposit is ₹250, while the maximum is ₹1.5 lakh. Contributions are required for 14 years, and the scheme matures after 21 years. One of the key benefits is the flexibility to transfer the SSY account between banks and post offices, ensuring ease of management.

• National Pension Scheme (NPS): The National Pension Scheme (NPS) is a government initiative encouraging employees to save for retirement. It offers tax benefits and provides a choice of equity, corporate bonds, and government securities for investment. Upon retirement, employees will receive a lump sum amount and a monthly pension, offering a reliable source of income in their later years.

Tax-Saving Investment Schemes:
 

1. Tax-Saving Fixed Deposits: Tax-saving Fixed Deposits (FDs) are a popular investment option that lets you claim tax deductions under Section 80C of the Income Tax Act, 1961, up to ₹1.5 lakh per year. This scheme offers a secure investment method with guaranteed returns and tax benefits. The first account holder can use the invested amount to avail of these deductions. With zero risk and a fixed interest rate, tax-saving FDs provide stability, and senior citizens may benefit from higher interest rates. The maximum investment is ₹1.5 lakh per fiscal year, with a minimum of ₹100. However, these FDs come with a 5-year lock-in period, during which premature withdrawals, loans, or overdraft facilities are unavailable.
   
   
2. Equity Linked Savings Scheme (ELSS): ELSS is a form of mutual fund with the shortest lock-in period, only 3 years. Unlike other tax-saving schemes in India, ELSS funds allow quicker access to the investment after the lock-in period. The amount invested in this savings scheme is eligible for tax deduction for up to ₹1.5 lakhs per annum under Section 80C. However, the returns generated are subject to tax, with long-term capital gains being taxed at 10% and dividends taxed at 10% under the Dividend Distribution Tax. 
   
   
3. Unit Linked Insurance Plan (ULIP): ULIP is a type of savings plan that offers you the dual advantage, i.e., the opportunity to invest the amount while ensuring the financial security of your loved ones. Investments under these schemes are eligible for tax deductions as per Section 80C, with a maximum limit of ₹1.5 lakh per year. Additionally, the maturity proceeds of a ULIP are tax exempted under Section 10(10)(D).
   
   ULIPs offer life insurance coverage while allowing you to select from various ULIP funds that invest in equities, debt, or a mix of two. These funds function similarly to mutual funds. The minimum annual investment amount varies across different funds but is typically set at ₹2,500.

Employer-Based Saving Schemes:
 

1. Employees Provident Fund (EPF): The Employees' Provident Fund (EPF) scheme, introduced by the Employees' Provident Fund Organisation (EPFO), is designed to help employees save for their retirement. For companies with more than 20 employees, contributing to the EPF scheme is mandatory. Both the employee and employer contribute 12% of the employee's basic salary and Dearness Allowance (DA) towards the fund. Employees can access their EPF funds for purposes such as medical emergencies, purchasing or constructing a house, paying off home loans, and more.
   
   
2. Voluntary Provident Fund (VPF): The Voluntary Provident Fund (VPF) scheme offers employees the option to voluntarily contribute a higher amount towards their retirement savings, allowing them to contribute their entire basic salary, unlike the Employee Provident Fund (EPF), where only 12% of the basic salary is contributed. Contributions made under the VPF scheme are linked to the EPF, meaning any changes in one will impact the other.

Choosing a saving scheme for your portfolio helps in securing your financial future. These schemes provide a disciplined, systematic way of growing your wealth while ensuring stability and predictability. Here are some of the reasons why savings schemes should be an integral part of your investment strategy:

1. Guaranteed Returns with Low Risk: Many savings schemes like fixed deposits or government-backed saving plans guarantee a fixed return, making them ideal for risk-averse investors. With guaranteed returns, you can plan your finances with confidence.
   
   
2. Disciplined Wealth Accumulation: A major advantage of savings plans is that they push you to save money in a systematic manner. Plans such as recurring deposits or monthly savings programmes help you build up wealth as time goes by. They also keep you from spending your money too soon when you might feel tempted.
   
   
3. Financial Security for the Future: Saving schemes help build financial security for your future needs, such as retirement, education, or health emergencies. They provide long-term growth while ensuring you have enough funds when life’s big expenses come calling.
   
   
4. Tax Benefits and Incentives: Many saving schemes come with tax-saving advantages to help you reduce your taxable income. Plans like PPF and ELSS can help you optimize your taxes while growing your portfolio.
   
   
5. Flexible Investment Options: Different saving plans meet a wide range of financial goals. You can pick from many choices, whether you want to save for the short term, plan for retirement in the long run, or do a bit of both. You'll find a plan that matches how much risk you're okay with, how long you want to save, and what you aim to do with your money.
   
   
6. Liquidity and Accessibility: Some saving schemes allow you to access your funds when you need them, offering flexibility in managing emergencies. On the other hand, certain long-term plans can also offer attractive returns if you're willing to lock in your funds for a specified period.
   
   
7. Diversification of Your Portfolio: Including saving schemes in your portfolio provides a balanced mix of safety, growth, and income. By diversifying across different investment types, including equities, fixed income, etc., you can reduce overall risk while enhancing returns in your financial journey.

To make the best investment decisions for your financial safety, it's important to choose the best saving scheme. Here are the factors that you must consider to choose the best scheme to meet your needs:

• Understanding Your Financial Goals: Before choosing a savings scheme, it’s essential to define your financial goals. Do you want to save for your child’s education, meet emergencies, or live a comfortable retirement life? Each goal will require a different approach, time frame, and type of scheme.
• Comparing Risk vs. Return: Saving schemes generally offer low to moderate returns. However, it is essential to compare the risk and return associated with each scheme. Government-backed schemes are the safest but may offer lower returns, while equity-based schemes like ELSS are riskier but have the potential for higher returns.
• Liquidity and Lock-in Period Considerations: Some saving schemes have a lock-in period, which means your money will be tied up for a certain duration. Take into account your need for liquidity and determine if you can afford to keep your money invested for a set period.
• Tax Benefits of Various Saving Schemes: Choose saving schemes that provide tax benefits, as they can help reduce the overall taxable income and potentially decrease your overall tax burden.
• Growth Potential and Security: Lastly, evaluate the growth potential and security of the scheme. Government-backed schemes are very secure, but their growth potential might be lower compared to market-linked schemes.

Even though you have an idea of the features and benefits of the best savings schemes in India, read the table below to get a better understanding of their differences. This will help you make an informed decision regarding your investment.

Government-Backed Saving Scheme:
 

Tax-Saving Investment Schemes:
 

Employer-Based Saving Schemes:
 

India provides a variety of financial products aimed at helping individuals save and grow their wealth. Often, the terms "saving" and "investment" are used interchangeably when people plan for their financial future. However, recognising the distinct differences between the two helps meet your specific objectives.