National Savings Certificate - VIIIth Issue (NSC)
The national savings certificate (NSC) is a government-backed five-year savings plan provided by post offices. The NSC plan is currently offering returns at an interest rate of 7.7% per annum on deposits upon maturity.
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Account type
A single account and a joint account (up to three members), as well as a guradian of a minor or a person of unsound mind, can open an NSC account at any post office branch.
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Investment
Minimum investment required to open an NSC account is INR 1,000 and a monthly deposit in multiples of INR 100. There’s no maximum investment limit on NSC accounts.
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Return on Investment
The NSC is currently offering an interest rate of 7.7% per annum. The interest rate is compounded annually, which means that the interest on the principal amount on the deposit is added upon previously accrued interest.
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Premature withdrawal
NSC accounts are allowed to be closed prematurely on the condition of account holder’s death, or on account of forfeit, or via an order by court.
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Maturity
An NSC plan matures in a span of five years. At the current rate of 7.7% compounded annually, the investment of INR 1,000 will give investors a return of INR 1,403 in five years.
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Tax Benefit
Interest earned on an NSC account is subject to tax deduction under section 80C of Income Tax Act.
Risk Level: Low to nil.
Senior Citizen Savings Scheme (SCSS)
The risk-free SCSS accounts cater to senior citizens only. It is a five-year savings plan offered by Indian post offices that gives a return at an annual interest rate of 8.2% on deposits that are made on a lump sum basis.
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Account type
A single SCSS account can be opened by senior citizens above 60 years of age, or retired personnel between 55 to 60 years of age. Joint account is permitted with spouse only.
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Investment
All investments are made on a lump sum basis, starting from a minimum of INR 1,000 and maximum deposit not exceeding INR 30 lakh.
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Return on Investment
SCSS is currently offering an interest rate of 8.2% per annum.
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Premature withdrawal
SCSS accounts can be prematurely closed, however, a penalty up to 1.5% on the principal deposit will be levied.
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Maturity
The maturity amount, which is principal amont and interest rate, is payable on a quarterly basis on Mar. 31, Jun 30, Sept. 30, and Dec. 31. SCSS accounts can also be extended upon maturity and closed after one year without any deduction.
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Tax Benefit
Investments under SCSS scheme qualify for tax deduction under Section 80C of Income Tax Act, 1961. However, interest earned will be taxable if it exceeds INR 50,000 in a financial year.
Risk Level: Low to nil.
National Savings Recurring Deposit Account (RD)
Post Office Savings Bank offers a five-year recurring deposit savings plan wherein deposits made on a monthly basis can earn up to 6.7% per annum. The RD account comes with a benefit to avail of loans as well as deduction on income tax.
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Account type
A single account and a joint account (up to three members), as well as a guradian of a minor or a person of unsound mind, can open an RD account at the post office.
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Investment
A minimum INR 100 has to be deposited per month, however, there’s no maximum investment limit.
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Return on Investment
The Indial postal service is currently offering an interest rate of 6.7% per annum on RD deposits. The interest rate is compounded quarterly.
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Premature withdrawal
Post office RD accounts can be closed prematurely after three years in order to earn an interest rate applicable on the account.
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Maturity
Post office RD accounts mature in five years or after 60 installments.
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Tax Benefit
The total investment on post office RD accounts is subject to tax deduction up to INR 1.5 lakh per annum under Section 80C of the Income Tax Act. However, the interest earned is subject to taxation.
Risk Level: Low to nil.
Pradhan Mantri Vaya Vandana Yojana - PMVVY
The risk-free PMVVY accounts cater to senior citizens only. It is a five-year savings plan offered by Life Insurance Corporation of India (LIC), and gives a return at an annual interest rate of 7.4% on deposits that are made on a lump sum basis. The scheme comes with a benefit to avail of loans as well as deduction on income tax.
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Account Type
Senior Indian citizens aged 60 years and above can open a PMVVY account.
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Investment
The account can be opened with a minimum balance of INR 1,000, and not exceeding INR 15 lakh.
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Return on investment
A PMVVY account is currently offering interest rate at 7.4% per annum payable during the overall policy term of 10 years, either on a monthly, quarterly, half-yearly, or yearly basis.
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Withdrawal
The funds can be withdrawn on account of the pensioner’s death, and upon surrender of the account.
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Tax Benefit
A PMVVY account holder can claim deduction interest earned as per Section 80C of Income Tax Act, 1961.
Risk level: Low to nil.
Sukanya Samridhi Yojana Account (SSA)
The Sukanya Samriddhi Yojana Account (SSA) is offered by Indian post offices, and caters to a girl child below 10 years of age. An SSA account can earn returns at 8.2% interest rate per annum upon maturity after 21 years from the date of opening an account.
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Account type
A parent or a guardian can open a single account in the name of the girl child, or up to two girls in a family. In case of twins or triplets, two accounts can be opened. Accounts will be operated by the guardian till the child attains 18 years of age.
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Investment
SSA accounts can be opened with an initial minimum deposit of INR 250, and recurring payments in multiples of INR 50. A maximum investment per financial year should not exceed INR 1.5 lakh. Deposits can be made either on a recurring basis, or in lump-sum.
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Return on Investment
The Ministry of Finance announces the interest rate on the SSA scheme on a quarterly basis. Currently, the scheme offers an interest rate of 8.2% per annum, which is compounded on a yearly basis. The interest amount is credited at the end of teh financial year.
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Maturity
A girl beneficiary can close the account and receive the maturity amount after completion of 21 years of age from the date of account opening and account. The beneficiary can also pledge the entirety of the amount at the time of marriage of the girl child after attaining age of 18 years of age, either one month before or three months after the date of marriage.
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Premature withdrawal
SSY accounts can be prematurely closed after five years of account opening on condition of the death of the account holder, or during emergencies.
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Tax Benefit
Deposits under Sukanya Samriddhi Account savings plan qualify for deduction under section 80C of Income Tax Act.
Risk Level: Low to nil.
Employees Provident Fund (EPF)
Employees Provident Fund (EPF) is a savings scheme for retirement and is managed by the employees’ provident fund organization (EPFO) for salaried employees. The EPF amount is deducted from employees’ salary during the entirety of their employment years.
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Account Type
EPF is applicable for those employees whose monthly salary is above INR 10,000. The scheme provides an assured interest of 8.25% per annum, and comes with tax benefits.
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Investment
In EPF, employees contribute 12% (or, INR 1,800 fixed amount) and the employer will match the amount and deposit 12% from their end.
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Return on investment
The scheme provides an assured interest of 8.25% per annum. A universal account number (UAN) is provided by the EPFO to an employee to access their PF passbook, check PF balance, etc.
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Maturity
An insured member can withdraw full PF amount once they attain 55 years of age.
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Withdrawal Options
Insured members can withdraw their PF balance either in advance or full settlement in case of emergencies, or on account of the beneficiary’s death.
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Tax Benefit
Both principal and interest amount is subject to tax deduction if the EPF contribution is below INR 1 lakh per year. For government employees, the amount will be taxable if it exceeds INR 5 lakh.
Risk level: Low to nil.
Post Office Monthly Income Scheme (MIS)
Indian postal service offers a MIS scheme with the benefit to receive interest earned on the lump-sum deposit on a monthly basis. MIS is currently offering returns at 7.4% interest per annum.
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Account Type
A single account and a joint account (up to three members), as well as a guradian of a minor or a person of unsound mind, can open an MIS account at any post office branch.
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Investment
A minimum investment of INR 1,000 is required to open an MIS account. A single account can be opened with a maximum balance of up to INR 4.5 lakh, and 9 lakh for joint accounts.
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Return on Investment
Interest earned on the MIS scheme, which is 6.7% per annum, is credited to the account holders’ savings account on a monthly basis.
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Premature Withdrawal
MIS accounts can be prematurely closed after one year. Accounts closed after one year up to three years will face 2% deduction from the principal amount. Similarly, 1% is deducted on accounts closed after three years.
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Maturity
An MIS account can be closed after its maturity period of five years. However, if the account holder dies before the maturity tenure, the account may be closed and the amount will be refunded to the nominee.
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Tax Benefit
Interest earned on a MIS account is taxable.
Risk Level: Low to nil.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) forms a large part of the financial portfolio of Indian consumers with low to zero risk appetite and relatively high interest earning needs. A PPF account provides a return at 7.1% interest rate. A PPF account comes with a benefit to apply for a loan up to 25% of the balance, whereas earning professionals can also avail of tax benefits on their investment.
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Account type
A single account and a joint account (up to three members), as well as a guradian of a minor or a person of unsound mind, can open a PPF account at any post office branch.
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Investment
A minimum investment required to open a PPF account is INR 500, and not exceeding INR 1.5 lakh in a financial year, which can be paid either on a monthly or lump sum basis. The Ministry of Finance revises PPF interest rate on a quarterly basis.
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Return on Investment
The PPF is currently offering an interest rate of 7.10% per annum. The calculation of PPF is done on a month-on-month basis, taking the lowest balance in the account available between the fifth day and to the month’s end. The maturity amount is credited to the account holder’s account at the end of the financial year.
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Premature Withdrawal
A PPF account can be closed prematurely only after five years on account of change in residency address, medical treatment, and higher education.
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Maturity
PPF comes with a lock-in period of 15 years. However, the account holder can extend it for another five years within one year from the date of maturity upon submission of application in Form 4.
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Tax Benefit
Deposits on PPF are subject to triple tax deduction, which means it enjoys the benefit of EEE (exempt exempt exempt) status on deposit, interest, and the maturity amount.
Risk Level: Low to nil.
Kisan Vikas Patra (KVP)
As the name suggests, KVP is a small savings scheme for the country’s farmers provided by the Indian postal service, and offers a 7.5% interest rate per annum.
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Account type
A single account and a joint account (up to three members), as well as a guradian of a minor or a person of unsound mind, can open a PPF account at any post office branch.
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Investment
A minimum investment required to open a KVP account is INR 1,000, and a monthly deposit in multiples of INR 100. The savings scheme has no upper maximum investment limit.
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Return on Investment
KVP is currently offering returns at the rate of 7.5% per annum. With the current rate of interest, which is compounded annually, the amount invested doubles in 10 years 3 months.
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Maturity
A KVP savings plan matures in 10 years 4 months from the date of opening an account.
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Premature withdrawal
KVP accounts can be closed prematurely on the condition of the death of a single account, any or all the account holders in a joint account, or after two years and 6 months from the date of opening an account.
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Tax Benefit
The investment does not qualify for tax deduction under section 80C of Income Tax Act.
Risk Level: Low to medium.
Atal Pension Yojana
The Atal Pension Yojana is a savings scheme for retirement managed by the Pension Fund Regulatory and Development Authority (PFRDA) for unorganized sector workers to get a guaranteed pension of INR 1,000 to INR 5,000 per month.
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Account Type
Individuals within the age-group of 18-40 years can open an APY account at any authorized bank branches and post offices.
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Investment
Individuals can contribute INR 42 to INR 1,454 per month on a quarterly and half-yearly basis for a period of 20 years.
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Return on Investment
Beneficiries can get a guaranteed pension of INR 1,000 to INR 5,000 per month after 60 years, depending on thier contributions. This amount beneficiaries receive depends as per their age they joined the scheme and their monthly contribution amount.
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Premature withdrawal
APY accounts can be voluntarily closed after submission of account closure form, or on account of death.
Risk level: Low to nil
National Pension Scheme (NPS)
The national pension scheme (NPS) is a savings cum retirement plan regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA) for citizens to build a retirement corpus. Just like EPF, a unique permanent retirement account number (PRAN) is allotted to every subscriber.
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Account Type
Individuals within the age group of 18 to 65 years can open an NPS account. The proceeds of the fund are invested on equity, corporate bonds, government securities and alternate assets, as per depositors’ choice.
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Investment
Tier I NPS account can be opened with the minimum contribution of INR 500, and there is no upper investment limit. Whereas, Tier II NPS accountcan be opened by individuals who already have a Tier I account, paying a minimum deposit of INR 1,000.
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Return on Investment
The NPS scheme offers returns based on the performance of funds.
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Withdrawal
Premature exit from NPS has withdrawal option up to 25% of the corpus. For lump sum withdrawal, 60% of the corpus amount can be withdrawn after attaining 60 years, and the remaining 40% of the corpus has to be invested to buy an annuity plan from the insurance company to receive a monthly pension.
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Tax Benefit
In Tier I NPS account, investment up to INR 2 lakh per annum is exempted from tax under Section 80 C and Section 80CCD, and interest earned is fully exempted from tax. In a Tier II NPS account, however, there are no tax benefits. Only government employees get tax benefits if they keep their investment locked for three years.
Risk level: Low
Bottom Line
Investing your money in small savings schemes offered by the Government of India come with low to zero risks. However, each savings plan is targetted for a particular group. Gathering necessary inputs on financial products suitable as per your savings goal before making an investment is necessary to make informed decisions.
