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Importance Of Small Savings Schemes On Your Personal Finance
For those willing to get higher returns apart from bank fds, the post office provides a plethora of deposit schemes. These strategies are regarded as small savings schemes as well and provide sovereign guarantee as they are backed by the government of India. Under Section 80C of the Income-Tax Act, 1961, some of these schemes, such as NSC, SCSS, and so on., also provide tax benefits. Recently the government kept the interest rates of these schemes unchanged for the quarter of January to March 2021. Hence, the interest rates are modified every quarter by the government which the investors must take into consideration carefully for their personal finance management. Below is a detailed look of all small savings schemes which can help you to manage your long-term investment goals.
Senior Citizen Savings Scheme (SCSS)
Senior citizens with the age of 60 or more are allowed to invest in this scheme in order to get regular interest income. This scheme comes with a lock-in period of 5 years and premature withdrawal is allowed with penalty only after the completion of one year. The maximum that can be deposited by any investor in this scheme is currently fixed at Rs 15 lakh. You can open the account independently or jointly with your spouse for which you will get an interest rate of 7.4% along with tax benefits under section 80C.
Sukanya Samriddhi Account
This scheme provided exempt-exempt-exempt (EEE) tax status to the investors and falls under the 'Beti Bachao Beti Padhao' initiative. This implies that the amount of investment, interest gained and the amount of maturity are exempted from tax. Only one account per girl child and a limit of two accounts on behalf of two separate girls can be opened by parents or legal guardians. After 21 years of span the maturity balance is payable. If the minimum amount required is not invested in a single financial year, a penalty will be imposed to the investor.
Public Provident Fund
Another popular investment approach that achieves the tax status as exempt-exempt-exempt is PPF. Since it comes with a 15-year lock-in term, partial withdrawal from the seventh year onwards is permitted. The scheme comes with a tenure of 15 years and the account can be extended in the blocks of 5 years. One can invest in this small savings scheme up to a limit of Rs 1.5 lakh for which he or she will get an interest of 7.1 percent per annum and also reap loan facility against his or her account.
5 Year NSC VIII Issue
National Savings Certificates (NSC) can be purchased individually, jointly or on behalf of a minor. This scheme comes with a tenure of 5 years and also counts for tax deduction under section 80C. One can invest in this scheme up to a limit of Rs 1.5 lakh against which the interest is not paid but rather re-invested. Except for the 5th year, the re-invested interest is also liable for a deduction under section 80C.
Post Office Time Deposit
Time deposits similar to a bank FD are also authorized by the post office. For any of the four tenures, 1, 2, 3, and 5 years, a Term Deposit (TD) can be opened by an eligible investor by depositing a minimum amount of Rs 1000 with no upper limit. In the scheme, even a minor over the age of 10 years can deposit. Under section 80C, a five-year period deposit also provides tax benefits.
Post Office Monthly Income Scheme
Individuals individually or jointly or minors aged 10 years or older can invest in the scheme for which they will get an interest rate of 6.6% per annum but payable monthly. The scheme comes with a tenure of 5 years with a minimum and maximum deposit of Rs 1000 and Rs 4.5 lakh in single account and Rs 9 lakh in joint account. After the completion of one year, the premature withdrawal facility can be made, but some penalty will be charged for the same.
Kisan Vikas Patra
You can opt this scheme if you want to double your investment within 10 years & 4 months. You can invest in this small savings scheme with a minimum deposit amount of Rs 1000/- and in multiples of Rs. 100/- with no upper limit for which you will get an interest rate of 6.9%. The Account can be opened individually or jointly (up to 3 adults), on behalf of a minor or on behalf of a person of unsound mind. Under this scheme premature withdrawal facility is also available but only against certain conditions.
Post Office Recurring Deposit
One can open a 5-year RD account by depositing a minimum amount of Rs 100 with no upper limit. The account can be opened individually, jointly (up to 3 adults), on behalf of a minor, or on behalf of a person of unsound mind. The current interest rate in this small savings scheme is 5.8 % per annum (compounded quarterly). Post office RD account can also be extended for a further 5 years, and against his or her account one can make premature withdrawal after 3 years from the date of account opening and can also avail a loan.
Post Office Savings Account
A post office savings account just like a savings account of a bank can be opened at any post office and interest is received on the balance of the savings account. You can only open an account with a minimum deposit of Rs 500 with no upper limit. Hence, the minimum balance of Rs 500 is to be maintained in order to take advantage of the cheque facility. The account can be opened individually, jointly, on behalf of a minor or on behalf of a person with an unsound mind. Under section 80TTA of the Income Tax Act, one can gain tax benefits for interest up to Rs. 10,000 received in a fiscal year.
Post Office Small Savings Schemes Interest Rates
| Small Savings Schemes | ROI in % | Min & Max Deposit |
|---|---|---|
| Post Office Savings Account | 4 | Rs 500, no upper limit |
| 5 Year Post Office RD | 5.8 | Rs 100, no upper limit |
| Post Office Time Deposit | 1 to 3 year - 5.5, 5 year - 6.7 | Rs 1000, no upper limit |
| Post Office Monthly Income Scheme | 6.6 | Rs 100 up to 4.5 lakh for single holder and 9 lakh for joint |
| Senior Citizen Savings Scheme (SCSS) | 7.4 % | Rs 1000 up to Rs 15 lakh |
| 15 year Public Provident Fund Account (PPF) | 7.1 % | Rs 500 up to Rs 1.5 lakh |
| Sukanya Samriddhi Account | 7.6% | Rs 250 up to Rs 1.5 lakh |
| National Savings Certificate | 6.8 % | Rs 1000, no upper limit |
| Kisan Vikas Patra (KVP) | 6.90% | Rs 1000, no upper limit |
Our take
To evaluate the instrument for investment, an individual should always be conscious of his/her risk appetite, savings, and potential objectives. An investor does not choose an investment randomly and then commit it to an objective. Instead, an investor can first select an aim and then pick a suitable investment for it.
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