Saving schemes in India play a vital role in helping individuals save for their future financial needs and goals. These schemes are available from government organizations, public/private sector banks, and financial institutions, offering a range of options with diverse features. By understanding the various saving schemes available, individuals can choose the ones that align with their requirements and objectives.
- Popular Saving Schemes in India
India offers a variety of saving schemes that cater to different financial goals and provide attractive returns, tax benefits, and financial security. These schemes help individuals diversify their savings and make the most of their investments. Let’s explore some of the popular saving schemes in India:
- Equity-Linked Savings Scheme (ELSS)
Equity-Linked Savings Scheme (ELSS) is a type of mutual fund that focuses on investing in equity and related securities. It offers tax benefits under Section 80C of the Income Tax Act, allowing individuals to claim deductions of up to Rs. 1.5 lakh per annum. One of the key advantages of ELSS is its relatively shorter lock-in period of three years, which is the shortest among all tax-saving instruments.
- Public Provident Fund (PPF)
Public Provident Fund (PPF) is a long-term saving scheme that offers guaranteed returns and tax benefits. The interest rate for PPF is decided by the government every quarter and currently stands at 7.1% per annum. Individuals can invest a minimum of Rs. 500 and a maximum of Rs. 1.5 lakh per annum in their PPF account. The maturity period for PPF is 15 years, and it can be extended by another five years.
- National Savings Certificate (NSC)
National Savings Certificate (NSC) is a government-backed small saving scheme that provides fixed returns and tax benefits. The interest rate for NSC is determined by the government quarterly and is currently set at 6.8% per annum. There is no maximum limit on investments, and individuals can start with a minimum investment of Rs. 100. National Savings Certificate (NSC) reaches maturity after a period of 5 years.
- Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is a saving scheme exclusively designed for girl children below the age of 10 years. The scheme aims to encourage savings for their education and marriage. SSY offers an attractive interest rate, currently set at 7.6% per annum, which is determined by the government quarterly. To participate in the Sukanya Samriddhi Yojana (SSY), a minimum investment of Rs 250 is required. while the maximum limit is Rs. 1.5 lakh per annum. The maturity period for SSY is 21 years or until the girl gets married after attaining 18 years of age.
- Post Office Monthly Income Scheme (POMIS)
Post Office Monthly Income Scheme (POMIS) is a small saving scheme that provides a fixed monthly income to investors. The scheme offers an interest rate determined by the government quarterly, which currently stands at 6.6% per annum. Individuals can invest a minimum of Rs. 1000, with a maximum limit of Under the Post Office Monthly Income Scheme (POMIS), a single account holder can receive Rs 4.5 lakh, while a joint account allows for Rs 9 lakh upon maturity, which occurs after a 5-year period.
- Senior Citizens Saving Scheme (SCSS)
Senior Citizens Saving Scheme (SCSS) is a dedicated saving scheme exclusively available for senior citizens aged 60 years and above. It offers a higher interest rate and tax benefits under Section 80C of the Income Tax Act, with a maximum deduction limit of Rs. 1.5 lakh per annum. The interest rate for SCSS, decided by the government quarterly, is currently set at 7.4% per annum. Individuals can invest a minimum of Rs. 1000, up to a maximum of Rs. 15 lakh. The maturity period for SCSS is five years, which can be extended for another three years.
- Atal Pension Yojana (APY)
The government introduced Atal Pension Yojana (APY) as a pension scheme targeting workers in the unorganized sector. It offers a guaranteed monthly pension ranging from Rs. 1000 to Rs. 5000, depending on the contribution amount and tenure. The minimum age to join APY is 18 years, while the maximum age is 40 years. The monthly contribution amount varies based on the age and pension amount chosen, ranging from Rs. 42 to Rs. 210.
- Voluntary Provident Fund (VPF)
Voluntary Provident Fund (VPF) is an extension of the Employees’ Provident Fund (EPF), allowing employees to contribute voluntarily more than the mandatory 12% of their basic salary and dearness allowance to their EPF account. The interest rate for VPF is determined by the EPFO every year and currently stands at 8.5% per annum. The contribution amount has no limit, but it cannot exceed 100% of the employee’s basic salary and dearness allowance. The maturity period for VPF is linked to the EPF account and can be withdrawn after retirement or resignation. - These saving schemes offer individuals various avenues to save and grow their wealth while enjoying tax benefits and financial security.
Minimum Investment Amounts for Different Saving Schemes
The minimum investment amount for various saving schemes can vary based on their specific features. Here is the list of the minimum investment amounts for some mentioned schemes:
- Equity-Linked Savings Scheme (ELSS): Minimum investment of Rs. 500 with no upper limit. Tax deduction is applicable on investments up to Rs. 1.5 lakh per year under Section 80C.
- Public Provident Fund (PPF): Minimum investment of Rs. 500 per year, with a maximum investment limit of Rs. 1.5 lakh. Deposits can be made in lump sum or in 12 installments.
- National Savings Certificate (NSC): Minimum investment of Rs. 100 with no upper limit. Tax deduction is applicable on investments up to Rs. 1.5 lakh per year under Section 80C.
- Sukanya Samriddhi Yojana (SSY): Minimum investment of Rs. 250 per year, with a maximum investment limit of Rs. 1.5 lakh. Deposits can be made in lump sum or any number of installments.
- Senior Citizens Savings Scheme (SCSS): Minimum investment of Rs. 1,000 with a maximum investment limit of Rs. 15 lakh. Deposits can be made in multiples of Rs. 1,000.
- National Pension System (NPS): Minimum investment of Rs. 500 per month or Rs. 6,000 per year.
- Kisan Vikas Patra (KVP): Minimum investment of Rs. 1,000 with a maximum investment limit of Rs. 10 lakh.
- Pradhan Mantri Vaya Vandana Yojana (PMVVY): Minimum investment amounts vary based on the chosen pension option. For example, for monthly pension, the minimum investment is Rs. 1,50,000.
Types of Saving Schemes In India
| Name | Eligibility | Interest Rate | Benefits | How to Apply | Time Period |
| Public Provident Fund (PPF) | Resident Indian, minor and major | 7.1% p.a. | Tax rebate under Section 80C for deposits (maximum Rs 1.5 lakh p.a.) interest is tax-free. | Open an account at a post office or a bank with KYC documents and deposit slip. | The initial duration of the program is 15 years, with the option to extend it in blocks of 5 years. |
| National Savings Certificate (NSC) | Resident Indian, minor and major | 7.7% p.a. | Tax benefit under Section 80C for deposits (maximum Rs 1.5 lakh p.a.) interest is taxable but reinvested. | Purchase a certificate from a post office with KYC documents and deposit slip. | 5 years |
| Sukanya Samriddhi Yojana (SSY) | The program is open to parents or legal guardians of a girl child who is under 10 years of age. | 8% p.a. | Tax benefit under Section 80C for deposits (maximum Rs 1.5 lakh p.a.) interest and maturity amount are tax-free. | Open an account at a post office or a bank with KYC documents and birth certificate of the girl child. | The investment in the scheme for a girl child remains locked until she reaches the age of 21 or gets married after turning 18. |
| Senior Citizens Savings Scheme (SCSS) | Individuals who are either over 60 years old or fall between the ages of 55 and 60 are eligible for the scheme. | 8.2% p.a. | Tax benefit under Section 80C for deposits (maximum Rs 1.5 lakh p.a.) interest is taxable but quarterly payable. | Open an account at a post office or a bank with KYC documents and deposit slip. | The initial duration of the program is 5 years, with the possibility of extending it for an additional 3 years. |
| National Savings Scheme (NSS) | Resident Indian, minor and major | 8.5% p.a. | Tax benefit under Section 80C for deposits (maximum Rs 1.5 lakh p.a.) interest is taxable but reinvested. | Open an account at a post office with KYC documents and deposit slip. | 10 years |
| Kisan Vikas Patra (KVP) | Resident Indian, minor and major, trust, HUF | 7.6% p.a. | No tax benefit, interest is taxable but reinvested. The amount doubles in 124 months. | Purchase a certificate from a post office or a bank with KYC documents and deposit slip. | 124 months |
| Pradhan Mantri Vaya Vandana Yojana (PMVVY) | Senior citizens of age> 60 years | 8% p.a. | Tax benefit under Section 80C for deposits (maximum Rs 15 lakh) interest is taxable but payable monthly, quarterly, half-yearly, or yearly. Guaranteed pension scheme for senior citizens. | Purchase a policy from LIC of India with KYC documents and deposit slip. | 10 years |
| Atal Pension Yojana (APY) | Resident Indian, age between 18 and 40 years | 8% p.a. | Upon reaching the age of 60, individuals are guaranteed a monthly pension ranging from Rs 1000 to Rs 5000. Tax benefit under Section 80CCD for deposits (maximum Rs 1.5 lakh p.a.) interest is taxable. | Enroll through a bank or post office with KYC documents and Aadhaar card. | Until the age of 60 years |
| Post Office Monthly Income Scheme (POMIS) | Resident Indian, minor and major, joint account holders | 6.6% p.a. | No tax benefit, interest is taxable but payable monthly. Suitable for regular income seekers. | Open an account at a post office with KYC documents and deposit slip. | 5 years |
| Pradhan Mantri Jan Dhan Yojana (PMJDY) | Resident Indian, age above 10 years | 4% p.a. | No minimum balance required, free debit card, accidental insurance cover of Rs 2 lakh, overdraft facility of Rs 10,000. Tax benefit under Section 80TTA for interest income up to Rs 10,000 p.a. interest is taxable. | Open an account at a bank or post office with KYC documents and Aadhaar card. | No limit |
| Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) | Resident Indian, age between 18 and 50 years | NA | Life insurance policy provides coverage of Rs 2 lakh in the event of death, regardless of the cause. Premium of Rs 330 p.a. deducted from the bank account. Tax benefit under Section 80C for premium paid and Section 10(10D) for maturity amount. Premium and maturity amount are taxable. | Enroll through a bank or post office with KYC documents and Aadhaar card. Consent form required for auto-debit of premium. | One year (renewable every year) |
Benefits of Investing in Saving Schemes:
- Safety: Investing in saving schemes provides a secure way to safeguard your excess money for future needs.
- Retirement Funds: Regular deposits in long-term saving schemes can help you build a substantial retirement corpus over time.
- Long-Term Benefits: Many schemes use the concept of compound interest, offering remarkable returns on long-term investments.
- Tax Savings: Various saving schemes offer tax benefits, including deductions and exemptions, reducing your overall tax liability.
- Avoid Unwanted Expenses: Investing surplus funds in suitable saving schemes helps prevent unnecessary expenditure on frivolous items, promoting better financial discipline.
Tax Implications of Saving Schemes
When considering saving schemes, it’s crucial to understand the tax implications associated with them. The tax treatment varies based on the type of scheme, the invested amount, interest earned, and maturity amount. Let’s explore the common tax implications of popular saving schemes in India:
Tax Deduction
Several saving schemes qualify for a tax deduction under Section 80C of the Income Tax Act, allowing individuals to reduce their taxable income by the amount invested. The maximum deduction allowed is Rs. 1.5 lakh per annum. Some of the schemes that offer this tax benefit include:
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- Equity-Linked Savings Scheme (ELSS)
- Senior Citizens Saving Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY)
By investing in these schemes, individuals can lower their taxable income and potentially reduce their overall tax liability.
Tax Exemption
Certain saving schemes provide tax exemptions on the interest earned and/or the maturity amount, thus ensuring tax-free returns. These exemptions fall under Section 10 of the Income Tax Act. Here are some schemes that offer tax exemptions:
- Public Provident Fund (PPF): The interest earned and the maturity amount are both tax-exempt.
- Sukanya Samriddhi Yojana (SSY): The interest earned and the maturity amount are tax-free.
- Senior Citizens Saving Scheme (SCSS): For senior citizens, the interest earned is taxable, but the maturity amount is tax-exempt.
These exemptions allow individuals to enjoy the benefits of compounded returns without any tax implications.
Taxable Income
Some saving schemes do not offer any tax benefits on the investment amount or the interest earned. The interest earned from these schemes is considered as taxable income and added to the investor’s total income. The tax liability is then determined based on the applicable income tax slab rates. Here are a few examples of such schemes:
- Post Office Time Deposit (POTD)
- Post Office Recurring Deposit (PORD)
- Post Office Monthly Income Scheme (POMIS)
- Kisan Vikas Patra (KVP)
While these schemes may not provide tax advantages, they still serve as viable options for individuals looking to save and earn returns.
Factors to Consider When Choosing the Right Saving Scheme
Selecting the most suitable saving scheme for yourself requires careful consideration of several factors. These factors include your financial goals, risk tolerance, investment horizon, tax implications, and liquidity needs. By evaluating these aspects, you can make an informed decision that aligns with your specific requirements. Here are some key points to consider before investing in any saving scheme:
- Define Your Financial Goals and Time Frame:
Setting Clear Financial Goals To begin, it is essential to define your financial goals and determine the time frame within which you aim to achieve them. For example, if you have long-term goals such as saving for your child’s education or marriage, you may opt for a saving scheme that offers higher returns and tax benefits over an extended period. On the other hand, if you are building an emergency fund, a short-term saving scheme with easy withdrawal options and safety features may be more suitable.
- Assess Your Risk Tolerance:
Evaluating Risk Tolerance Understanding your risk tolerance is crucial when selecting a saving scheme. Consider your comfort level with risks and the potential for higher returns. If you are willing to assume higher risks for the possibility of greater rewards, equity-linked saving schemes that invest in the stock market may be suitable. However, if you prefer low-risk options with guaranteed returns, government-backed saving schemes that offer fixed interest rates may be more appropriate.
- Compare Features and Benefits:
Analyzing Key Features Before finalizing a saving scheme, compare important aspects such as interest rates, tenure, tax benefits, and other features. Evaluate how each scheme aligns with your needs and expectations. For instance, if you aim to save on taxes under Section 80C of the Income Tax Act, options like Public Provident Fund (PPF), National Savings Certificate (NSC), Equity Linked Saving Scheme (ELSS), or Senior Citizen Savings Scheme (SCSS) can be considered. If you seek regular income, Post Office Monthly Income Scheme (POMIS) or SCSS may be appropriate. If saving for your girl child’s future, the Sukanya Samriddhi Yojana (SSY) could be a viable choice.
- Periodic Portfolio Review:
Regularly Monitoring and Adapting It is crucial to periodically review your saving scheme portfolio and make adjustments based on changing needs and market conditions. For example, if you have achieved a short-term financial goal, you may consider withdrawing funds from the current saving scheme and reinvesting them in another scheme that aligns with your long-term objectives. Similarly, if interest rates for a particular saving scheme have significantly decreased, it might be prudent to switch to an alternative scheme offering more favorable returns.
Choosing the right saving scheme involves a comprehensive evaluation of various factors to ensure it meets your specific requirements. By considering factors such as financial goals, risk tolerance, scheme features, and periodic portfolio review, you can make informed decisions that maximize the benefits and returns from your savings.
FAQs on Saving Schemes
There are various types of saving schemes in India, including equity-linked savings scheme (ELSS), public provident fund (PPF), national savings certificate (NSC), sukanya samriddhi yojana (SSY), senior citizens savings scheme (SCSS), national pension system (NPS), kisan vikas patra (KVP), pradhan mantri vaya vandana yojana (PMVVY), and more. Each scheme has its own unique features, benefits, and limitations that should be considered before making an investment decision.
Investing in saving schemes offers several benefits. Firstly, it provides safety for your money, securing it for future needs. Secondly, regular deposits in long-term saving schemes can help build a retirement corpus. Thirdly, most schemes utilize compound interest, leading to long-term growth and attractive returns. Additionally, many saving schemes offer tax benefits, such as deductions or exemptions. Lastly, investing in a suitable saving scheme helps avoid unnecessary expenses by utilizing surplus funds effectively.
Before investing in saving schemes, it is important to consider factors such as your financial goals, risk appetite, liquidity needs, tax implications, and interest rates. Assess your objectives, determine your risk tolerance, evaluate the availability of funds when needed, understand the tax implications of the scheme, and compare the interest rates offered by different schemes. Taking these factors into account will help you make an informed investment decision.
Investing in saving schemes can be done through various channels, including online portals, banks, post offices, and financial institutions. You need to complete an application form, provide the necessary KYC (Know Your Customer) documents, and make the payment through cheque, cash, or online transfer. Upon successful investment, you will receive a certificate or statement of account as proof of your investment.
You can withdraw money from saving schemes after the completion of the lock-in period or maturity period, depending on the specific scheme. To initiate a withdrawal, you need to submit a withdrawal form along with your original certificate or statement of account and a valid identity proof. The withdrawal amount will be disbursed through a cheque or directly credited to your bank account, as per the rules of the scheme.
To open a saving scheme account, choose a suitable scheme, visit the institution’s branch or apply online, fill out the application form, provide required details and documents, make the initial deposit, and receive the account number or passbook.
To close a saving scheme account, visit the institution’s branch or apply online, fill out the closure form with a reason, submit the passbook or statement, receive the maturity amount after deductions, and obtain a confirmation of the account closure.
Risks in saving schemes include interest rate fluctuations, limited liquidity due to lock-in periods, credit risk in non-government or non-bank schemes, and potential changes in tax implications.