Saving schemes are an important part of the economy and a working community because they allow people to plan clearly how their monthly earnings can be utilized. Most people who are earning do not have enough knowledge about how their money should be planned so that their future is kept secure in their hands.
Multiple savings schemes are set up by the Government of India, banks, and financial institutions, which allow individuals to make small monthly contributions and earn a good amount of money in the future or in the long run.
This article’s major topic is savings schemes available in the market and investing in them.
What is a Savings Scheme?
It is not always easy for individuals with a monthly income to reach their financial goals in a pre-determined amount of time. This is major because, if they hold the earned money in their hand, they might end up spending this on unnecessary things, which, when coupled at the end, would result in a considerable amount of money. But if the individual invests or contributes this money to various account schemes introduced by the Government of India, banks, or financial institutions, then they would be able to achieve their financial goal by taking small baby steps towards the same.
And this is what saving schemes are meant for. The amount that results from long-term contributions to these savings schemes can be used for various emergencies, such as child education, marriage, retirement, or even the meeting of huge debts incurred, or when faced with a difficult situation.
Benefits of investing in Saving Schemes
The investment in savings schemes would provide the individual with the following benefits namely:
Safe and Secure:
The savings schemes introduced by the Government of India are among the safest schemes that individuals can adopt to park their money for the future. The schemes assure the individual of a feasible risk-free interest on the savings made by the individual. This helps you make good earnings for the future.
Fund for Retirement:
Savings schemes, which are mainly introduced by the Government, provide a source for retirement benefits. When savings are started at a young age, you can earn a huge amount of corpus fund for retirement, making the same safe again.
Benefits earned on a Long-term basis:
The savings schemes work on a compound interest basis. So, the interest that gets compounded year by year shall fetch the investing individual a massive return in the long term, which means there will be interest earned on interest. The lock-in period of these investment schemes is a minimum of 5 years. However, the maximum of this shall only be extended to the attainment of 60 years by the investing individual.
Saving tax:
Many savings schemes also provide individuals with tax benefits. These may be in the form of an exemption from tax deduction or even both. Some of these offers offer the individual a deduction of up to INR 1.5 Lakhs under section 80C of the Income Tax Act.
Control of Expenses:
The savings schemes help individuals have control over their spending habits. This is because, as they are making contributions to the savings scheme taken by them, they would not have extra money left on hand, which would again reduce the amount of money left with them that can be spent on unwanted things.
Different Savings Schemes Available in India
Public Provident Fund (PPF)
This is one of the most well-known and popular products, and many companies and individuals use it to save a part of their money for the future. It is a government-backed long-term tax-free savings scheme to which companies with more than 100 employees should be making contributions on behalf of their employees. Both the employee and the employer shall contribute. The money that was deposited into this can be claimed as a deduction while computing the tax liability, and the interest earned from such account shall be tax-free. The lock-in period of this savings scheme is 15 years and can be extended in blocks of 5 years once the lock-in period expires. The compound interest on such a scheme is 7.1% per annum (p.a). The minimum investment to be made is INR 500, while the maximum is INR 1.5 Lakhs per year.
National Savings Certificate (NSC)
This again is a government-backed savings scheme that guarantees a return for the investing individual. The investment in NSC can be made by an individual visiting the nearest post office. The lock-in period of such a scheme is 5 years with the current interest rate of 6.8% p.a. The interest rate shall be reviewed and may also be revised every quarter by the Government Authority. But the same shall stay the same during the tenure of purchase. The investment can be claimed as a deduction under section 80C, which shall not hold any limit, and can be done in accordance with the will of the individual. The interest which shall be compounded annually and paid to the individual on maturity shall be taxable, hence the same should be added to the total taxable income of the individual.
Post Office Investment Scheme (Monthly Basis)
These are some of the most minimal schemes available for investment and savings by individuals. The process for gaining such savings is simple and easy, as it functions similarly to a simple savings bank account. The minimum amount with which the investment can be started is INR 1,500, which may extend up to INR 4.5 Lakhs.
The interest income earned can be above a rate of 6% and can be subscribed to only by Indian citizens. However, it shall be noted that the interest income earned on the investment made in this account shall not be Eligible for any tax deduction. There are various schemes available to individuals under this.
Atal Pension Yojana
This is mainly used to help people or individuals who belong to the BPL or are below the poverty Line. The individuals working in the unorganized sector are the major target here, as they need ample support from the Government of the country. The contribution made to the scheme is very low, but it assures a pension receipt for such individuals after their retirement.
The individual opting for this scheme should have an active savings account and be between the ages of 18 and 40. The minimum duration for contributing to this scheme is 20 years. If they have opted for this scheme, they cannot opt for any other savings scheme, and the increase in contribution will help them earn a high amount of pension on retirement.
Voluntary Provident Fund (VPF)
This saving scheme is opted for on a voluntary basis. The contribution made to it will be the entire amount of an individual’s basic salary. This is one significant difference between VPF and PPF. In PPF, the contribution amount shall be limited to 10% of the basic salary.
Kisan Vikas Patra (KVP)
This is a scheme that is offered by the post offices situated in India. The rate of interest income earned on this scheme would be more than 7%, and the contribution should be made over 112 months, which is more than 9 years. The minimum contribution to be made shall be INR 1,000, while there is no limit specified for the maximum contribution to be made. There can be nominees added to the scheme and also transferred from one post in India to another. The individual can also encash the cVP certificate after 30 months of receipt or issue of such certificate.
Senior Citizens Saving Scheme (SCSS)
This savings scheme was introduced to help Indian citizens over 60. Citizens who have opted for VRS (Voluntary Retirement Scheme) and are between the ages of 55 and 60 also adopt this scheme. The duration limit of this scheme is 5 years, and the rate of interest is above 8%. There is also a tax deduction available under section 80C of the Income Tax Act on contributions made to this scheme.
Sukanya Samriddhi Yojana Account (SSY)
This is a scheme that allows individuals to save money for their girl child, which can be used after attaining maturity for the education or marriage of such a child. It can be opened with banks or post offices. This will allow the earning of interest at a rate above 8%. The minimum contribution to be made shall be INR 1,000, while the maximum shall be about INR 1.5 Lakhs. The maturity period shall be 21 years.
It should be noted that this is not an exhaustive lis, and there aree various other schemes available to an individual. All the available schemes should be appropriately analyzed before any decision is made, and this article only discusses some of the easily accessible and simple saving schemes.
