Saving schemes are launched by the Government of India, Banks, and financial institutions. Saving schemes help investors to achieve their financial goals over a period of time. Governments or banks decide the rate of interest in these schemes. An investor can use the savings he makes through these schemes for retirement, higher education, children’s education, marriage, to reduce debts, and more.
There are a number of schemes available for individuals who are looking for saving in India. Many schemes are backed by the Government of India, while RBI and SEBI regulate the others.
Equity-Linked Savings Scheme (ELSS)
ELSS investments get tax deductions up to Rs.1, 50,000 under Section 80C of the Income-tax Act, 1961. The investment has a compulsory lock-in period of 3 years. Returns on the redemption of the investments are taxable in the hands of investors as capital gains. The gains enjoy an exemption of up to Rs.1, 00,000.
ELSS savings have exposure to the equity market with underlying investments in debt and equity. The equity component offers higher returns and debt provides safety against volatility. A Systematic Investment Plan (SIP) provides stability of investment and fetches higher returns. The minimum investment starts at Rs. 500.
Employees Provident Fund (EPF)
Employee Provident Fund (EPF) is a savings scheme under the EPFO guidelines. An employer and employee covered under EPF are required to contribute to a Provident Fund (PF) account in the name of the employee. EPF offers long-term retirement planning for employees. The account is transferable from one employer to another.
The employer and employee contribute 12% of the monthly salary into the provident fund account. The employees’ contribution is eligible for deduction under Section 80C of the Income-tax Act, 1961.
Pradhan Mantri Jan Dhan Yojana
Pradhan Mantri Jan Dhan Yojana is a savings scheme for citizens who are below the poverty line. The account holders can make use of the scheme for reinvestments purpose.
They will receive additional accidental insurance cover of Rs.1, 00,000 and a life cover of Rs.30, 000 that is payable on the death of the beneficiary.
Apart from other benefits, account holders can also avail interest on deposits. The account holders can also have an overdraft facility of up to Rs.5, 000 one account per household.
Public Provident Funds (PPF)
PPF is a long term tax free savings scheme. The amount deposited in PPF account will get tax deduction under Section 80C of the Income Tax Act, 1961. The interest earned from such savings is also exempt.
An individual can open a PPF account at the nearest bank or post office. The amount invested will be locked in for 15 years and can be extended in blocks of five years after the completion of the lock-in period. Returns will be calculated based on compound interest at the rate of 10% p.a. An individual can invest up to Rs.1, 50,000 per annum.
National Savings Certificate (NSC)
National Savings Certificate (NSC), is a saving scheme, provides guaranteed returns along with a tax saving option. An individual can invest in an NSC at the nearest post office.
The rate of interest will not change during the tenure after the purchase of the certificate. Tax deductions can be claimed on the investment up to Rs.1,50,000 under Section 80C.
The amount of interest will be annually compounded and paid only on maturity. The interest accrued on maturity of scheme is taxable and must be added to the total annual income of the assessee. The interest amount reinvested and compounded by the assessee is eligible for deduction under Section 80C.
Post Office Monthly Income Scheme
The Post Office Monthly Income Scheme is similar to a savings bank account. Individual account holders can invest from a minimum of Rs.1,500 up to Rs.4,50,000 in the scheme. The account holder will get a monthly income in the form of interest credited to the savings account with the same post office.
In the case of joint account holders, two or three individuals can invest jointly up to a maximum Rs.9, 00,000 in the scheme. The investments made and interest earned are not eligible for a tax deduction or exemption.
Kisan Vikas Patra (KVP)
An individual can invest in Kisan Vikas Patra (KVP), a fixed-rate small savings scheme, by approaching the nearest post office. The investment has a tenure of 113 months at an interest rate of 6.9%. The scheme encourages long-term investments and is suitable for risk-averse investors who have excess money.
The minimum investment can be made is Rs.1, 000 with no upper limit. KVP offers guaranteed returns and comes with a premature encashment option after completing 2.5 years. The investment made and interest earned is not eligible for a tax deduction or an exemption. A KVP certificate can be used as collateral to get loans from banks.
Voluntary Provident Fund (VPF)
Salaried individuals can opt for an additional contribution of up to 100% of their basic salary and dearness allowance over and above the 12% contribution done to the Employee Provident Fund (EPF). An interest rate of 8.5% can be accrued on the accumulated funds.