(Saving schemes) When we speak of a life well lived, financial independence as exhibited by money conscious living and a good habit of saving is one of the fundamental expectations. Of course, we all need to save some money for a rainy day and must feel comfortable in the knowledge that no unforeseen financial contingencies will divert us from our chosen way of life.
Modern banking is an efficient and a big way of support for saving schemes that encourage patrons to open a clever investment schemes which are intended to horde sums of money for a specified duration, earning periodic interest and offer the peace of mind for the investors through the unfailing realization that parked monies are working through all 24*7 time for them offering the aggressive growth and complete protection.
What are small savings?
- In general, schemed for small savings were intentionally framed for attracting people towards the safety and protective investment options. At the same time, these schemes are to mobilize resources for development. These saving schemes are primarily meant only for small urban people.
- Small saving plans will not only provide growth to your money but also provide you with the financial security at various stages of your life. It depends on your needs based on what product you have chosen at the best.
- Eligibility is restricted for the investors from rural areas and also for the institutions. At the same time, the Non Resident Indians (NRI’s) will also be restricted against investing in all the schemes available for small saving including Public Provident fund (PPF) and other deposit schemes for retiring employees.
Important Points to consider before starting a small saving scheme:
- When you need returns? In short term or long term?
- How much risk can you take? Decide on whether safe or risky investment!
- What will be your pattern of investment?
- How much do you have knowledge of the particular scheme?
- Must go through the scheme documents before starting.
- Only a good research can save your hard earned money as some financial plans will have its own advantages and short fails.
- For example, if you are looking for a short-term saving, investment in post offices, government bonds, and mutual funds are the best choices.
Types of small saving schemes:
- Public Provident fund (PPF) agency scheme
- National savings certificate
- Post office savings
Post Office Monthly Income Schemes (POMIS):
In general, post office schemes are known to be the best small saving schemes that are operated in various ways throughout the country due to their trust and easy accessibility. Also, public provident fund scheme will be operated through some branches of a public sector bank supporting some of the post offices. Various Deposit schemes have been introduced and activated for retiring employees will be operated only through selected public sector bank branches.
Liquidity: This will provide monthly income at 8% pa to investors and offers investors an exit option after one year from the date of investment.
Tax: The interest on investments as well as the bonus which are received on maturity will qualify for the tax benefits under section 8oL of the Income Tax Act.
Who can invest? POMIS is best suitable for investors like retirees who are looking for regular returns.
Public Provident fund (PPF) agency scheme
Amongst all, the PPF ranks as one of the most attractive schemes offering a return of 8% P.A and runs over a 15-year period. This scheme will promote regular savings ensuring that the contributions will get varied from Rs.500 to Rs.70, 000 P.A
Liquidity: PPF doesn’t score well on this parameter. Withdrawals will be permitted only after 5 years.
Tax: investors are entitled to claim for tax benefits under section 88 for deposits up to Rs.70, 000 P.A.
Who should invest?
PPF is proved to be a smart investment option for those who have age on their side and for those who doesn’t concern about liquidity.
National Savings Certificate (NSC)
NSC will provide 8% rate of interest that is compounded half yearly. The tenure of this investment will be 6 years which will be further locked for some time.
- NSC VIII issue is for 5 years and the rate of interest is 8.5% per annum
- NSC IX issue is for 10 years and the rate of interest is 8.8% per annum
- The Minimum investment is Rs.100 and there is no limit for investment.
- No tax will be deducted at the source.
- Trust and HUF cannot invest under this.
Kisan Vikas Patra (KVP)
Falling under the category of small saving schemes, KVP doesn’t offer any benefits under the Income Tax Act. This runs over the tenure of 8n years and 7 months.
Liquidity: Investors are permitted to liquidate their investments in any time after 2.5 years from the D.O.I.
Tax: the interest on investments will be fully taxable.
What the future will likely to be? As like NSC, the axe could fall on KVP.
Who should invest? KVP will hold an appeal for investors in cases where tax benefits are not considered as a priority.
Advantages of small savings:
- It will be readily available
- Short term planning
- Wide range of plans
- Simple to enrol