Small Savings Schemes not only diversifies your investment portfolio, but can also prove to be reliable investment options. Here are 5 popular Savings Schemes you must consider.
Usually, people tend to associate investment with only equity linked investment options or to Mutual Funds since these options can certainly fetch you greater earnings given their equity margin and risk factor.
While most pro investors swear by Mutual Funds and other equity linked investments, Mutual Funds may not always be everyone’s cup of tea. Having said that, you may be wondering what your other options are.
Additional Reading: List Of Saving Schemes That Are Worth Investing In
Most investors lean towards PPF as an investment option mainly due to its tax deduction benefit. The interest earned is tax free and there is no tax on maturity either. However, there is a cap on annual investment and it stands at Rs. 1.5 lakhs per year.
Therefore, the PPF may not be suitable for young investors who are looking for tax deduction options available given the lower annual investment limit. Yet, this is a superb way to also boost debt portfolio for older investors (aged 45 and above).
The interest rates on government bonds are usually revised every quarter. The interest rate on PPF has been hiked to 8% for the October – December 2018 quarter at the moment, so this is a good time to invest in PPF if you haven’t already.
Additional Reading: All About The Public Provident Fund (PPF) Scheme
Another wonderful investment option is the SSY due to the nature and purpose of this investment. You can open a SSY account for your daughter (below the age of 10) as a means to save up for her higher education or marriage.
Again, the annual investment limit is set at Rs. 1.5 lakhs. A parent can open a maximum of two Sukanya Samriddhi Yojana accounts with the combined investment not exceeding more than Rs. 1.5 lakhs per annum.
The SSY offers a tax deduction under Section 80C of The Income Tax Act along with tax free interest and maturity. The interest rate on SSY is at 8.5% currently.
Additional Reading: Changes In The Sukanya Samriddhi Yojana Scheme
The highly underrated Post Office investment option is something you must consider keeping in mind its interest rate & investment limit. Currently, the Post Office Monthly Investment Scheme will earn an interest of 7.7% for the December quarter.
An investor can have multiple accounts under his/her name not exceeding Rs. 4.5 lakhs in a single account and Rs. 9 lakhs in a joint account. This scheme also offers premature withdrawal of investment with a penalty after one year. The penalty is as follows; 2% deduction after one year and 1% deduction after three years.
However, you may want to know that the income earned under this scheme is taxable. Which means, although you will earn higher returns on this scheme, your interest earned will have no tax rebate under Section 80C.
Considering the hike in interest rates from 7.6% to 8% for the December quarter, the NSC is an alluring option for investment. More so because the revised interest rate on NSC is at par with some of the high paying bank Fixed Deposits (FD).
The NSC has an edge over a tax-saving FD and PPF as there is no upper limit set on investment and the same can be pledged to avail a loan. Additionally, the interest rate on NSC gets locked for the five-year term at the time of investment unlike PPF.
Income earned as interest in an NSC is added to the investor’s income and taxed as per the applicable tax bracket of the investor. The interest is re-invested each year and the cumulative interest which is compounded annually is paid out along with the principal at maturity.
Therefore, the interest income for the first four years will qualify for deductions within the Rs. 1.5 lakh limit under Section 80C.
The SCSS interest rate has been hiked to 8.7% per annum making it higher than most Fixed Deposits that banks offer. Moreover, the SCSS also gives quarterly interest which acts as a regular steady income for retirees.
An investor can invest a maximum of Rs. 15 lakhs either in a single or a joint account. You can open an SCSS account if you are; a citizen of India and are above the age of 60 or are a retiree who has opted for Voluntary Retirement Scheme (VRS) and are between the age of 55 – 60 years.
Under this scheme an investor can claim tax benefits up to Rs. 1.5 lakhs under Section 80C. If you wish to open an SCSS account you can do it at your nearest Post Office branch or at any authorized bank branch.
Additional Reading: Why FDs Should Not Be The Only Investment Option For Retirees
Opening a SCSS at a bank will require you to carry a lot of documents along with you. But, did you know that you can eliminate all the paperwork if you wish to open a Fixed Deposit with us?
Yes, our application processes are completely paperless. You can earn up to 8.5% on our FDs. Sold on this idea?