Saving Schemes In India : Saving schemes are investment products offered by financial institutions with the primary aim of helping people save money for their future needs. These schemes typically offer a fixed rate of interest and allow for regular contributions to be made.
Advantage of Saving Schemes
Saving schemes offer several advantages that make them an attractive option for people looking to save money for their future needs. Some of the key advantages of saving schemes include:
- Guaranteed returns: Most saving schemes offer guaranteed returns, which means that you are assured of a fixed rate of interest on your investment.
- Safety of capital: Saving schemes are typically offered by reputable financial institutions, and the investments made under these schemes are usually protected by the government. This means that your capital is relatively safe.
- Regular income: Some saving schemes, such as recurring deposits, allow you to make regular contributions over a specified period of time. This can help you build a steady stream of income.
- Tax benefits: Many saving schemes offer tax benefits, which can help you reduce your tax liability and maximize the returns on your investment.
- Convenience: Most saving schemes are designed to be easy to use and accessible, making it convenient for people to invest and manage their savings.
- Forced savings: Some saving schemes, such as recurring deposits, require you to make regular contributions. This can help you discipline your savings and build a habit of putting aside money for your future needs.
Different types of Savings Schemes
Some of the various schemes that are available are mentioned below:
Fixed Deposits (FDs) Savings Schemes
Fixed Deposits (FDs) are savings schemes offered by banks and other financial institutions that offer a fixed rate of interest for a specified tenure. They are a popular savings option for people looking for a safe and secure place to park their money and earn a decent rate of return. Some of the key features of fixed deposits include:
- Guaranteed returns: FDs offer guaranteed returns, which means that you are assured of a fixed rate of interest on your investment for the term of the deposit.
- Safety of capital: FDs are considered to be a safe investment option, as the deposits are typically protected by the government.
- Flexibility: FDs offer a wide range of tenures, from 7 days to 10 years, allowing you to choose the tenure that best suits your investment needs.
- Liquidity: While FDs are not as liquid as savings accounts, they can be easily redeemed before the maturity date, subject to a penalty on the interest rate.
- Tax benefits: Interest earned on FDs is taxed as per your income tax slab, and TDS (Tax Deducted at Source) is applicable if the interest earned exceeds the limit set by the government.
- Interest options: FDs offer two options for interest payouts – cumulative and non-cumulative. In a cumulative FD, the interest is compounded and paid out at maturity, while in a non-cumulative FD, interest is paid out at regular intervals.
These are some of the key features of fixed deposits. By investing in a fixed deposit, you can earn a guaranteed return on your investment, while enjoying the safety and security of your capital. It’s important to compare the interest rates offered by different banks and financial institutions before investing in a fixed deposit, to ensure that you get the best return on your investment.
Recurring Deposits (RDs) Savings Schemes
A Recurring Deposit (RD) is a type of term deposit offered by banks in India where a fixed amount is invested every month for a specified period of time, usually ranging from 6 months to 10 years. The depositor earns interest on their RD account at a rate similar to that of a fixed deposit, but with the convenience of smaller and regular monthly deposits.
At the end of the specified period, the depositor receives the total accumulated amount along with the interest earned. RDs can be opened by individuals or joint account holders and are often used as a way to save and invest money systematically.
Some of the key features of RDs include:
- Fixed Monthly Deposit: The depositor is required to make a fixed monthly deposit into the RD account.
- Fixed Tenure: The RD account has a fixed tenure, usually ranging from 6 months to 10 years.
- Fixed Interest Rate: The interest rate on an RD is fixed for the entire term of the deposit.
- Loan Availability: RD account holders can take a loan against their RD, subject to certain conditions.
- Premature Withdrawal: RD account holders may be allowed to make a premature withdrawal, subject to a penalty.
- Tax Benefits: RD deposits are eligible for tax benefits under Section 80C of the Income Tax Act.
Overall, RDs are a safe and convenient investment option for individuals who are looking to save and invest regularly over a longer period of time.
Public Provident Fund (PPF) Savings Schemes
Public Provident Fund (PPF) is a savings scheme offered by the Government of India to encourage people to save for their long-term financial goals. It is a long-term investment vehicle with a tenure of 15 years, which can be extended in blocks of 5 years.
Some of the key features of PPF include:
- Eligibility: PPF is open to all Indian citizens, including minors who are represented by their guardians.
- Deposit Limit: The minimum deposit required to open a PPF account is Rs. 500 per year, with a maximum limit of Rs. 1.5 lakh per year.
- Tax Benefits: PPF deposits are eligible for tax benefits under Section 80C of the Income Tax Act. The interest earned on a PPF account is tax-free.
- Interest Rate: The interest rate on PPF is set by the government and is revised annually. The current rate of interest is 7.1% p.a.
- Loan Availability: PPF account holders can take a loan against their PPF account after the third financial year, subject to certain conditions.
- Premature Withdrawal: PPF account holders can make a premature withdrawal after the completion of 5 years, subject to certain conditions.
- Maturity: At the end of the tenure, the depositor receives the total accumulated amount along with the interest earned.
Overall, PPF is a low-risk investment option that provides a decent return along with tax benefits, making it a popular choice among investors looking to save for the long-term.
National Savings Certificate (NSC) Savings Schemes
National Savings Certificate (NSC) is a savings bond issued by the government of India that provides a fixed rate of return over a specified period of time. The NSC is a popular investment option for individuals in India who are looking for a safe and secure investment with guaranteed returns. The certificate can be purchased from any designated post office in India, and the investment qualifies for tax benefits under Section 80C of the Indian Income Tax Act. The NSC has a maturity period of 5 or 10 years, and the interest earned on the investment is compounded annually but is taxed as per the applicable tax slab. The investment in NSC can be made in the name of an individual, jointly with another individual, or on behalf of a minor.
Senior Citizen Savings Scheme (SCSS) Savings Schemes
The Senior Citizen Savings Scheme (SCSS) is a savings scheme specifically designed for Indian citizens who are 60 years or older. It is a government-sponsored savings scheme aimed at providing a regular source of income to senior citizens. The scheme offers a fixed rate of interest and provides tax benefits under Section 80C of the Income Tax Act, 1961.
Under the SCSS, an individual can invest a minimum of 1,000 and a maximum of 15 lakhs. The investment can be made in a single or joint name and the tenure of the scheme is 5 years, which can be extended by another 3 years. The interest on the investment is paid quarterly, and the investment and interest earned are fully taxable. The deposit in the SCSS is eligible for a TDS (Tax Deducted at Source) exemption up to a certain limit.
SCSS is considered as a safe investment option for senior citizens as it is backed by the Government of India and offers a stable and decent return on investment. The money invested in the SCSS is also fully secure and is eligible for deposit insurance coverage under the Deposit Insurance and Credit Guarantee Corporation (DICGC) of India.
Sukanya Samriddhi Yojana (SSY) Savings Schemes
The Sukanya Samriddhi Yojana (SSY) is a savings scheme introduced by the Government of India for the benefit of the girl child. The scheme is aimed at promoting the education and financial security of the girl child by encouraging families to save for their future. The scheme is open to families with a girl child of less than 10 years of age.
Under the SSY, an individual can open a savings account in the name of the girl child and deposit a minimum of 1,000 and a maximum of 1.5 lakhs in a financial year. The deposit earns a fixed rate of interest and is eligible for tax benefits under Section 80C of the Income Tax Act, 1961. The deposit can be made for a minimum period of 14 years and a maximum of 21 years, after which the depositor can withdraw the money along with the interest earned.
The SSY account can be opened in any post office or authorized bank and is fully secure, as it is backed by the Government of India and is eligible for deposit insurance coverage under the Deposit Insurance and Credit Guarantee Corporation (DICGC) of India. The money invested in the SSY can be used for the education and marriage expenses of the girl child, and in case of the death of the depositor, the money is paid to the legal heir.
The Sukanya Samriddhi Yojana is considered as a good investment option for families with a girl child, as it provides a stable and decent return on investment, along with tax benefits and the security of the deposit. ( Read More About Sukanya Samriddhi Yojana (SSY))