Best Savings Plans to Secure Your Future
Savings plans are low-risk investments that are designed to encourage disciplined savings while delivering steady returns to help investors achieve their financial goals. Savings plans are ideal for long-term wealth creation since they offer reliable returns that are not impacted by market volatility and have a lock-in period to discourage early redemption. In today’s uncertain world, a savings plan can also provide financial security to your loved ones in the event of your unexpected demise. In this article, we will discuss the features and benefits of some of the best savings plans in India.
Best Savings Plans in India
The best plan will not be the same for every person as savings plans in India differ in terms of their maturity periods, taxability, and the returns they offer. While choosing a plan, you must match your financial goals with the expected returns from the plan. Here are some of best savings plans options in India:
- Post Office Recurring Deposit
- National Savings Certificate (NSC)
- Public Provident Fund (PPF)
- Post Office Monthly Income Scheme
- Senior Citizens’ Savings Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY)
- Atal Pension Yojana (APY)
- National Pension Scheme (NPS)
- Kisan Vikas Patra
Post Office Recurring Deposit (RD)
The Post Office Recurring Deposit scheme is ideal for investors who are looking to invest small amounts of money, build a solid corpus over time, and have a low risk appetite. As the minimum monthly investment amount is Rs. 100 with no cap on the maximum amount, the investors have complete freedom to choose the investment amount. The government backed scheme is a good medium-term investment option having a maturity period of 5 years and an annual interest rate of 5.8%.
This scheme offers the flexibility to withdraw half of the total balance after a year by taking a loan which can be repaid as a lump sum amount or in monthly installments. The scheme can be closed prematurely at the end of 3 years and it can also be extended by another 5 years at the end of the 5-year tenure. RD accounts can be jointly opened, and are transferable across post offices in India.
National Savings Certificate (NSC)
National Savings Certificate is a low-risk tax-saving instrument that can be subscribed to by making an application at any post office in India. The annual interest rate for this government backed scheme is 6.8% with a maturity period of 5 years. The minimum investment amount is Rs. 1,000 with no cap on the maximum amount. Except for the interest earned in the year of maturity, NSC interest earned every year and the principal amount invested are eligible for tax deduction under Section 80C of the Income Tax Act.
Public Provident Fund (PPF)
A Public Provident Fund or PPF is a government backed low-risk and long term investment option that offers an annual interest rate of 7.1%. After a 15 year lock-in period, the investment can either be withdrawn or the scheme can be kept active with an unlimited extension option in blocks of 5 years. The minimum investment amount is Rs. 500 with the maximum amount capped at Rs. 1.5 lakhs every year. The principal amount is eligible for tax deduction under Section 80C of the Income Tax Act. Furthermore, the accumulated amount and interest is also exempt from tax at the time of withdrawal. In case of urgent need of funds, loans and advances can also be availed against the PPF account.
Post Office Monthly Income Scheme
Investors who desire a guaranteed payment on a regular basis and have a low risk profile can choose the Post Office Monthly Income Scheme. The government backed scheme is a good medium-term investment option having a maturity period of 5 years. It offers an interest rate of 6.7% per annum payable monthly. The minimum investment amount is Rs. 1,000. Investors are permitted to open and manage any number of accounts, but the combined balance cannot exceed Rs. 4.5 lakhs in a sole operated account and Rs. 9 lakhs in a joint account. At the end of the maturity period, the investment can either be withdrawn or the scheme can be kept active by making further investments.
Senior Citizens’ Savings Scheme (SCSS)
The Senior Citizens’ Savings Scheme was introduced by the government to give senior citizens an investment option that offers a regular and reliable source of income. The SCSS can be availed by:
- Senior citizens above the age of 60;
- Retired people between 55 to 60 years of age that choose VRS or superannuation; and
- Retired defense employees between 50 to 60 years of age.
This 5-year savings plan offers an interest rate of 7.6% currently. However, this interest rate is reviewed quarterly by the government. The minimum investment amount is Rs. 1,000 with the maximum amount capped at Rs. 15 lakhs. The principal amount is eligible for tax deduction under Section 80C of the Income Tax Act and interest earned up to INR 50,000 per year is exempt from tax. There is a tax deducted at source (TDS) on the interest payment if the amount is more than Rs 50,000 per annum.
Sukanya Samriddhi Yojana (SSY)
A government-sponsored savings plan called Sukanya Samriddhi Yojana is introduced to encourage savings for the benefit of girls below the age of 10 years. A parent or guardian can open only one account on behalf of a girl child, and a family can open a maximum of two SSY accounts (three accounts allowed in case twins are born). The maturity period of the plan is 21 years from the date of account opening. The closure of the account may also be permitted before completion of twenty-one years if the account holder has attained 18 years of age and is getting married.
The SSY offers an interest rate of 7.6%. The minimum investment amount is Rs. 250 with the maximum amount capped at Rs. 1.5 lakhs per year. The principal amount is eligible for tax deduction under Section 80C of the Income Tax Act. Further, the maturity benefits and the interest earned are also exempt from tax.
Atal Pension Yojana
This is a government initiative that was created primarily to help those in underprivileged socio-economic groups and those employed in unorganized industries. The Pension Funds Regulatory Authority of India oversees the Atal Pension Yojana which offers a guaranteed monthly pension ranging between Rs. 1,000 to Rs. 5,000. The APY can be availed by a non-taxpayer Indian citizen between 18 to 40 years of age. This low-premium savings plan’s main objective is to make sure that no person has to fret about unforeseen costs due to illness or accidents in their later years.
National Pension System (NPS)
A savings investment plan that provides investors with monthly income after retirement is the National Pension Scheme (NPS). Employees can contribute to this plan while they are employed. Unlike other fixed-income savings schemes, NPS is a market-linked product which allows you to invest in a mix of equity, government debt, corporate debt, and alternative assets. After retirement, you can withdraw 60% of the amount as a lump sum, and the remaining 40% is used to buy an annuity through which monthly pension is paid.
Any individual who is a subscriber of NPS can claim tax benefit under Sec 80 CCD (1) within the overall ceiling of Rs. 1.5 lakhs. An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B).
Kisan Vikas Patra
This long-term savings scheme that was initially introduced for only farmers is now open to all individuals. The Kisan Vikas Patra is open to any individual over 10 years of age and is available in the local post office. As a major objective of this scheme to double a one-time investment, its interest rate determines the tenure of the scheme. For example, according to the present interest rate of 7.0% per annum, the tenure of the scheme is 10 years and 3 months. The government reviews the interest rate every quarter and tweaks it frequently. However, once you invest in the scheme, the same interest rate will apply to you for the whole term.
The minimum investment amount is Rs. 1,000 with no cap on the maximum amount.
Also Read: Post Office Scheme to Double the Money
There are a variety of savings plans that cater to a wide range of investors with different needs and risk profiles. Most savings plans are safe, reliable, and tax-free. For optimal wealth building, you can invest in a combination of the best savings schemes.
What are the steps to invest in a savings plan?
To create a full-proof savings plan one must:
Create a budget
Decide financial goals
Determine monthly savings contribution
Regularly track income and expenditure
Gradually increase the savings amount.
How can you compare the various savings plans?
To choose the best savings plan from a lot of choices available today, you must consider the period of maturity, premium, and returns.
Who is eligible to invest in a savings plan?
Anyone who is interested in assured, risk-free savings can invest in the savings plan. The minimum age to invest in a savings plan is between 0 and 18 years, while there is no maximum age limit.
What is the correct time to invest in a savings plan?
You must invest in a savings plan as soon as possible. Even if you invest small amounts over a long period, you can get significant returns through the compounding of interest.