The phenomenal rise of mutual funds in India has led to a drop in investments in small savings scheme, the latest RBI data shows. According to the RBI, in the first eight months of financial year 2017-18, receipts for small savings schemes stood at Rs 40,429 crore, a massive seven-fold dip from Rs 2,75,682 crore in the same period last year. This implies that investors have been shying away from deposits, savings certificates and also from safe schemes like the Public Provident Fund (PPF). But investing in small saving schemes still makes sense as they not only provide safe and guaranteed return, but most of them also double up as tax saving instruments.
In this article, we take a look at some small saving schemes that guarantee safe returns.
Public Provident Fund
This government backed safe scheme offers guaranteed returns and is the best option for risk-averse investors looking to create wealth in the long run. A PPF account can be opened at any leading nationalised or authorised banks if you hold a Savings Bank Account with them or at post offices. You are allowed to deposit an amount as small as Rs. 500 to Rs. 1.5 lakh in a year. This is the most tax-efficient investment scheme as it enjoys the Exempt-Exempt-Exempt (EEE) status. This means that it provides tax relief under Section 80C for up to Rs 1,50,000, but also exempts you from tax for interest earned through the term and on the total amount on maturity. These are unlike fixed deposits where interest earned is fully taxable and returns are low if you fall in the highest tax bracket of 30%.
National Savings Certificate (NSC)
The best feature of National Saving Certificate scheme is that you can invest an amount as little as Rs. 100. Like the PPF, this is also a government-backed scheme with higher returns and flexibility. This investment comes with a lock-in period of 5 years and there is no cap on the amount invested in NSC. This scheme is also a good choice for people looking to save taxes. Your NSC investment can be used to claim deductions under Section 80C. Additionally, your interest income from your NSC investment is tax-free for the first four years, and only the fifth year’s income is taxable. This makes the NSC a wise, tax-efficient choice for investors looking at long term investments. A comparable investment would be the five-year Fixed Deposit offered by most banks. However, this is a less tax-efficient investment as your interest earnings from fixed deposits are wholly taxable as per your slab.
Senior Citizens Savings Scheme
This can still be a good choice for those over 60 years of age, or individuals aged between 55 and 60 who have retired on superannuation or VRS, as it comes with the benefit of regular income and tax saving. This safe scheme is offered by both banks and postal departments with returns guaranteed. You can invest up to Rs. 15 lakh in this scheme but only in the multiples of Rs. 1,000. The interest rate for this scheme is reviewed and set every quarter. If you invest in this scheme, then you can get deductions under Section 80C of the Income Tax (I-T) Act, which offers tax benefit for amount invested up to Rs 1.5 lakh per annum.
You can also consider other small saving options like Post Office Monthly Income Scheme (MIS) and Kisan Vikas Patra (KVP) for good returns. The MIS guarantees assured returns with a minimum investment of Rs. 1,500 up to Rs. 4.5 lakh in a single account and Rs. 9 lakh in a joint account. The lock-in period for this scheme is 5 years, but the money can be prematurely encashed after a year. You can also enjoy tax rebates through this scheme.
The Kisan Vikas Patra can be bought through post offices and are available in the denominations of Rs. 1,000, 5,000, 10,000 and 50,000. This comes with a lock-in period of 30 months and can double your invested amount in 118 months.
You should consider investment options based on your financial goal. These are small schemes that can give guaranteed returns. The choice should be based your needs and the time span you want to give your money to grow.
(The writer is CEO, BankBazaar.com)