Savings Schemes are investment options for Indian citizens launched by the government as well as other public sector financial institutions. These saving schemes were introduced as an incentive to cultivate healthy saving and investing habits in India. This is also a way to increase the inflow of money into the Indian economy.
In earlier times Indians used to keep their money with themselves and this caused poor circulation as well as stagnation of wealth. By means of saving schemes, which are backed by the government, Indian citizens can allow their wealth to appreciate at higher interest rates and reap benefits such as tax exemption that certain savings schemes offer.
Savings schemes cater to a wide demographic and encourage individuals to invest for various milestones of life such as retirement, children’s higher education, their marriage etc. They are ideal for long term wealth creation as they come with a certain lock-in period and offer good returns. Since they are not impacted by market volatility, they are safer investment options, ideal for the conservative investor.
Furthermore, the interest rates on various saving schemes are revised on a quarterly or half yearly basis, keeping up with the rising costs of living and inflation. Mentioned below are the various savings schemes available for Indian citizens and their salient features.
Tax Saving fixed deposits are suitable for investors looking for lower risk and a fixed and guaranteed return on a long- term basis. Deposit made is allowed as a deduction under Section 80C up to Rs 1.5 lakh. If you invest say Rs 50000, and your total income is taxed in the 20% tax slab rate, a deduction of Rs 10000 (Rs 50000 * 20%) will be allowed.
| Bank Name | Interest Rate | Interest Rate for Senior Citizens |
| Laxmi Vilas Bank | 7.85% | 8.45% |
| Bandhan Bank | 7.65% | 8.40% |
| AU Small Finance Bank | 7.77% | 8.27% |
| DCB Bank | 7.75% | 8.25% |
| IDFC First Bank | 7.75% | 8.25% |
Unit Linked Insurance Plan (ULIP) is a combination of investment and insurance. In this plan insurance company puts a portion of the amount for life insurance and rest of the portion in equity-oriented a mutual fund or debt- oriented mutual fund.
This division of amount to be invested is based on the long-term goals of an investor like retirement planning, children’s education, marriage, etc.
Equity Linked Savings Scheme (ELSS) is a type of mutual fund, with the shortest lock-in period of just 3 years, investing at least 80% of assets in equity (stocks) offering a higher compounding potential in the long term among other tax-saving schemes
∙ Minimum Investment Amount differs for fund houses
∙ No limit on Maximum Investment
∙ Deduction on Principal allowed under section 80C up to Rs 1.5 lakh
∙ Interest is taxable at 10% (LTCG)
∙ Dividend earned is taxable at 10% as dividend distribution tax
The Sukanya Samriddhi Yojana is a government savings scheme created with the intention to benefit the girl a child who is 10 years of age or younger.
A parent or legal guardian can open maximum of 2 accounts for 2 girl child. The account matures after 21 years of opening the account or in the event of the marriage of the girl child after she gains the age of 18 years.
A premature withdraw up to 50% of investment is allowed after the child gains the age of 18 years even if she is not getting married.
The National Pension System is a savings scheme which aims at providing monthly income after the retirement of the investor. Here employees need to invest in NPS while they are employed. The entire accumulated throughout the duration of the scheme is broken down through an annuity plan, and then paid out to the investor every month post retirement.
This scheme is secure and reliable source of monthly income for retired employees of state and central government organizations, employees of MNCs, and citizens who are employed in the unorganized sectors.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension plan run by Life Insurance Corporation LIC for senior citizens aged minimum of 60 years. An assured return of 8% per annum is provided monthly (equivalent to 7.4% per annum) for 10 years. However, the investor can choose for monthly/quarterly/ half-yearly or yearly payment of his pension.
Senior Citizen Saving Scheme (SCSS) is aimed to provide a regular income for senior citizens aged above 60 years available at a certified bank and post offices across India.
This scheme is applicable to 3 categories of investors
Few other pointers are listed below:
amount invested is allowed as a tax deduction
Government Savings Scheme is popular among the investors as these investment plans are reliable, low risk and secure. Let’s read about these schemes in detail.
Public provident fund or PPF is an investment option that has been extremely popular with Indians across generations. The reasons for its popularity are many. The major reason why PPF is considered as a preferred choice can be attributed to it being a safe investment option.
The interest rate is an attractive 7.1% PA and the invested amount can be claimed under Section 80C to lower your tax liability. Not only this, the interest earned on invested amount is also exempt from tax.
The lock-in period is 15 Years, after which you can choose to withdraw your corpus. You can keep the scheme live by extending it by 5 years thereafter as per your requirements. The minimum amount that needs to be deposited is just Rs 500 and the maximum amount is capped at Rs 1.5 Lakh annually. You can either deposit this amount in a lump sum mode or choose to make deposits in 12 installments. Please note that an amount more than Rs 1.5 Lakh will not be eligible to earn interest as well as can’t be used to claim tax exemption.
Any Indian citizen can avail benefits of this scheme, however, HUFs and NRIs are not eligible to open a PPF account. You can hold only one PPF account per person and joint accounts are not allowed. At the time of account opening however, you can assign a nominee.
A very interesting fact about PPF money saving scheme that many investors are unaware of is that you can take a loan against the amount you invested in PPF. This loan can be availed between the 3rd and 5th Year . The maximum loan amount you can avail is 25% of the 2nd year immediately followed by the year in which application for loan has given. You can also avail a second loan in the sixth year, provided the first loan has been paid in full.
National Savings Certificate or NSC is a great investment option that comes with the advantage of tax saving.
NSC can be obtained from any post office by Indian citizens. This investment option is a preferred choice of individuals who are looking for safer investment avenues as it is backed by the Government of India, consequently carrying a low risk.
Currently NSC VIII with a tenure of 5 years is available for subscription. The interest rates for NSC range between 7-8% PA and is fixed by the Ministry of Finance every financial year. For instance, the NSC interest rate for FY 2019-20 is at 8% compounded annually.
While the minimum investment amount is Rs 100, unlike PPF there is no limit to the maximum amount that can be deposited . However, only Rs 1.5 Lakh Rs qualify for a tax exemption under Section 80 C annually.
Another important point to note is that NSC interest is not tax exempt. However, the interest amount accumulates in the account and is not paid to the depositor. So technically, the interest earned each year can be considered as a reinvested amount, and hence is eligible as a fresh deduction under Section 80 C, thereby making it tax free.
Post office savings account can be considered as a regular savings account offering a slightly better rate of return . It is safe as well as offers the flexibility of partial and complete withdrawal of invested amount at short notice for financial emergencies.
Post office savings scheme account boasts of guaranteed returns and is suitable for investors who have a low risk appetite, and senior citizens seeking an assured source of income source with minimal risk exposure. The interest rate offered by this scheme is 4 % applicable for both joint and single account holders. Interest amount upto Rs 10,000 is tax exempt.
Post office time deposit scheme is one of best saving schemes run by the Indian post office. This scheme is popular mostly among the rural population of India where better known investment products haven’t reached yet. As the name suggests the time deposit scheme can be of 1 , 2, ,3 or 5 years in tenure.
The scheme is suited for investors seeking assured returns with minimal risk. It is also transferable from one post office to another. The interest rates are revised periodically, periodically and for FY 2019-20 it stands at 7% for the first three years and 7.8% thereafter. A depositor can open multiple time deposits, there is no cap. As soon as the tenure of a time deposit ends, if the money is not withdrawn it gets renewed for the original amount at whatever interest rate is applicable on maturity date.
Please note that an investor can claim tax benefit under Section 80 C for investment in 5 year post office time deposit.
One of the most popular schemes amongst other post office saving schemes is the post office recurring deposit ( post office RD). This scheme is best for individuals who have small investible amounts ; the scheme can be started with Rs 10 per month and subsequent amounts in multiples of Rs 5. There is no maximum amount that can be invested.
The scheme commands an interest rate of 5.8% annually. The scheme also offers high flexibility, the depositors can partially withdraw upto 50% of the total balance after one year. You can also keep extending the amount by 5 years at the end of investment tenure. RD is transferable between post offices, can be opened as a joint account as well as allows flexibility of opening multiple accounts.
Recurring deposits are a great way to cultivate regular investing and saving habits amongst small investors who want to build a corpus over time with minimum risk to capital.
As the name suggests Post Office Monthly Income scheme offers fixed income in the form of interest based on the lump sum deposit made by the investor.
Needless to say this scheme is ideal for investors with low risk appetite looking for a regular assured sum. While this scheme is eligle to be invested in by resident individuals, it can be used by minors as well. Infact, minors above the age of 10 can even operate his account. The depositor can open multiple accounts of this monthly saving scheme however, the net amount in all schemes combined shouldn’t exceed Rs 4.5 Lakh.
Offering liquidity benefits, investors can withdraw the deposited corpus one year from first deposit. However, please be aware that a withdrawal between 1 and 3 years attracts 1 % penalty and a withdrawal post 3 years attracts 1 % penalty respectively. One major downside is that unlike other saving schemes that offer dual benefits of wealth creation as well as tax saving, POMIS does not come with any tax benefits. Interest received monthly will be considered as part of the taxable income ; the monthly interest amount received as well the deposit amount are free from TDS.
Kisan Vikas Patra is a small savings certificate scheme launched by India Post In 1988. Like all other government schemes, KVP was also launched as a long term wealth creation avenue for farmers .
Over the years it has emerged as a safe wealth creation option that Indian citizens with low risk appetites can opt for. The scheme spans for 118 months or 9 years and 10 months. What’s special about the scheme is that if you deposit a sum today at the end of the tenure your amount will get doubled. The minimum investment amount required is Rs 1000 and there is no cap to the maximum limit.
Also it is mandatory to produce a PAN card for deposits more than Rs 50,000 for safety reasons. For deposits exceeding Rs 10 Lakh, the depositor needs to furnish other income proofs such as income tax return, salary slips, bank statement etc. Furthermore, depositors are mandated to furnish Aadhaar number as an identity proof as well.
The table below summarises all government saving schemes with their salient features.
| Scheme Plan | Eligible | Minimum Investment Required | Maximum Investment Allowed | Interest Rate Earned | Tax Deduction |
| Public Provident fund (PPF) | Individual | Rs 500 per year | Rs 1.5 lakh per year | 7.1% p.a. (Annually Compounded) | Allowed up to Rs 1.5 lakh |
| National Savings Certificate (NSC) | Individual | Rs 100 | No Limit | 6.8% p.a. (Compounded Annually) | Deduction on deposit made up to Rs 1.5 lakh |
| Post Office Savings Account | Resident Individual | Rs 20 | No Limit | 4% p.a. | Tax free interest |
| Post Office Time Deposit | Individual | Rs 200 | No Limit | First 3 years- 7%
Fourth year- 7.8% |
Deduction up to 5 years on deposit |
| Post Office Recurring Deposit | Individual | Rs 10 | No Limit | 5.8% | Interest taxable, no deduction on deposit |
| Post Office Monthly Income Scheme (POMIS) | Individual | Rs 1500 | Single account- Rs 4.5 lakh
Joint account- Rs 9 lakh |
7.3 % per annum payable monthly | Interest taxable, no deduction on deposit |
| Kisan Vikas Patra (KVP) | Individual | Rs 1000 | No Limit | 7.5% p.a. (Compounded Annually) | Interest Tax, amount received on maturity exempt |
To sum up, there are a variety of saving schemes spread across risk profiles that cater to a wide variety of investors. All of them are government supported hence promise capital protection as well as appreciation at attractive rates.
Keep in mind the interest rates, tax treatment as well as lock-in period of different schemes to select the most suitable option. For optimal growth of your wealth you can invest across a combination of best savings schemes as well.