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Small Savings Schemes: Features, Benefits, & Types

Embarking on the journey of investment in India's small savings schemes is a judicious financial step, brimming with numerous advantages.

These investment routes, fortified by government support, are secure and high-yield opportunities for individuals eager to augment their financial reservoirs while curtailing risks.

What is a Small Savings Scheme?

Small saving schemes are government-backed savings products that help households build money safely over time. You deposit a fixed or flexible amount and earn interest that is reviewed periodically by the government. These saving schemes in India are designed for clear life goals like education, retirement, and emergencies. They are easy to open through banks and post offices, and most come with simple rules, fixed tenures, and transparent interest credit. If you also plan to diversify with bonds, Bondbazaar offers education on government and high-quality corporate bonds that can complement small savings.

Key Features of Small Savings Schemes

  • Government-backed safety and transparent rules: Capital protection with clear, published scheme guidelines.
  • Quarterly rate review: Interest is reviewed every quarter and credited as per scheme norms.
  • Defined tenures: Choices from short to long duration so you can match goals and timelines.
  • Flexible payouts: Opt for monthly income, a lump sum at maturity, or products that offer both.
  • Easy onboarding: Simple KYC-based account opening at banks and post offices nationwide.
  • Tax benefits: Eligible options offer deductions or exemptions under Sections 80C, 80TTA, and 80TTB.
  • Useful facilities: Nomination, pledge, and transfer features aid estate planning and loan access.
  • Low entry amounts: Small minimum deposits make small saving schemes ideal for first-time savers; diversify later with bonds via Bondbazaar.

Benefits of Small Savings Schemes

  • Capital protection: Government backing adds a high level of safety for principal.
  • Predictable earnings: Administered rates provide steady, visible returns.
  • Goal alignment: Tenures suit education, retirement, and emergency buffers.
  • Tax efficiency: Select saving schemes in India offer deductions or exemptions under 80C, 80TTA, 80TTB.
  • Low entry points: Small minimum deposits help first-time savers start early.
  • Accessible everywhere: Open and service accounts at banks or post offices with simple KYC.
  • Flexibility: Choose monthly income or a lump sum at maturity based on cash-flow needs.
  • Liquidity options: Some products allow loans or premature closure with defined rules.
  • Diversification: Combine small saving schemes with high-quality bonds via Bondbazaar to balance stability and returns.

Government Collections

The collections under these schemes by the government, at the net level, indicate the faith reposed by savers and investors in these instruments.

The Finance Ministry’s Revised Budget Estimates for FY23 reveal a surge in net collections through Small Savings instruments, standing robust at Rs 3,48,501.27 crores.

This is anticipated to increase to over 17%, reaching Rs 4,09,541.91 crores in FY24.

The Allure of Small Savings Schemes

 In the diverse spectrum of investment, why does one lean towards small savings schemes in India?

The answer lies in the myriad benefits and options available, resonating with varying financial objectives and risk tolerances.

Advantages Unveiled:

  1. Assured Returns: The government backing ensures investors the security of their principal amount and a fixed interest return, instilling confidence and tranquillity.
  2. Substantial Returns: These schemes stand out with their attractive interest rates, adjusted periodically to resonate with inflation and cost-of-living indices, ensuring a favourable return on investment. The next round of revision in interest rates is expected on September 30.
  3. Stable Investment: Prioritizing investment safety, these schemes are insulated from market volatility, presenting a stable and secure option for cautious investors.
  4. Tax Benefits: Enjoy tax exemptions on the interest accrued from postal savings under Section 80TTA of the Income Tax Act, 1961.
  5. Diverse Choices: From long-term wealth accumulation to schemes dedicated to senior citizens and children, the government offers options to cater to varied investor needs.
  6. Investment Flexibility: Tailor your investment based on your financial blueprint, choosing the scheme that aligns seamlessly with your goals.

List of Small Saving Schemes in India

  • Public Provident Fund (PPF): Long-term, 15-year account with tax benefits under 80C and tax-free interest. Suits retirement planning and can be extended in 5-year blocks.
  • National Savings Certificate (NSC): Five-year fixed-income certificate. Interest is compounded and paid at maturity. Eligible for 80C up to the notified limit.
  • Senior Citizens’ Savings Scheme (SCSS): Five-year account for eligible seniors, extendable by three years. Quarterly interest payout helps create a post-retirement income stream.
  • Sukanya Samriddhi Yojana (SSY): For a girl child below 10 years. High administered rate, tax benefits, and partial withdrawal for higher education after conditions are met.
  • Post Office Monthly Income Scheme (POMIS): Five-year deposit that pays interest monthly. Helps build a second income for households seeking stability.
  • Kisan Vikas Patra (KVP): Certificate that aims to double the money at a notified period. Offers pledge and transfer facilities, suitable for conservative savers.
  • Post Office Time Deposit (TD): Fixed deposits across four tenures. The 5-year TD qualifies for 80C deduction as per current rules.
  • Post Office Recurring Deposit (RD): Five-year disciplined saving with monthly deposits and compounding, plus loan facility after qualifying instalments.
  • National Pension System (NPS): Long-term retirement solution with market-linked returns and tax benefits under 80C and 80CCD(1B).
  • Atal Pension Yojana (APY): Defined pension for eligible subscribers in the unorganised sector, with contributions linked to the chosen pension amount.

For portfolio balance, many investors use small savings for safety and add bonds for income. Bondbazaar provides learning resources and access to exchange-listed bonds to complement the best savings scheme in India choices for your goals.

How does one start the process?

  1. Research: Begin by exploring the plethora of small savings schemes available.
  2. Documentation: Assemble the necessary identification documents.
  3. Post Office Visit: Proceed to the nearest post office, complete the application, and submit the documents.
  4. Decide the Amount: Determine your investment amount in alignment with the scheme’s minimum requirements.
  5. Account Initiation: Upon successful document submission and deposit, your account comes to life, accompanied by the relevant documents and passbook.
  6. Regular Oversight: Maintain a close watch on your account, staying updated on interest accruals and maturity dates while managing deposits and withdrawals. 

Factors to Consider Before Investing in Saving Schemes

  • Goal and tenure: Match the scheme duration with your timeline.
  • Liquidity: Check exit rules, premature withdrawal, and penalties.
  • Tax treatment: Understand 80C eligibility, interest taxation, and Section 80TTA or 80TTB benefits.
  • Cash flow need: Choose monthly income or maturity lump sum as required.
  • Risk comfort: Government-backed schemes offer stability, while market-linked options may vary.
  • Contribution flexibility: Confirm minimum amounts, top-ups, and frequency.
  • Documentation and access: Ensure KYC readiness and convenient servicing through your bank or post office.
  • Diversification: Mix small savings with bonds and deposits. For bonds, Bondbazaar connects to NSE and BSE for transparent pricing.

Conclusion

 Investing in small savings schemes unfolds a realm of benefits, from guaranteed and substantial returns to diverse options, tax reliefs, and secure investment opportunities. 

Navigate through the various schemes, choosing the one that suits your financial aspirations and risk capacity.

By anchoring investments in these small savings schemes, secure your financial future, reach milestones, and relish the tranquillity emanating from a stable and trustworthy investment.

Explore the government's diverse small savings schemes and harness the multifaceted benefits.

Frequently Asked Questions

1. Which government based saving schemes offer the highest interest rate?

Rates change quarterly. Historically, SSY and SCSS have offered higher administered rates among small saving schemes, while PPF and NSC are competitive for long-term goals. Always check the latest government circular before investing and consider taxes, tenure, and liquidity rather than only the headline rate.

2. Can a student invest in a post office saving scheme?

Yes, minors can hold accounts with a guardian. For select schemes like RD, TD, and savings accounts, minors above a prescribed age may operate the account subject to rules. For SSY, a guardian opens the account for an eligible girl child. Check eligibility, KYC, and minimum deposit requirements at your post office.

3. What are the different fees and charges applicable on post office saving schemes?

Common charges include duplicate passbook fees, account revival for dormant accounts, premature closure penalties, and pledge or transfer processing where allowed. There may be nomination update or account transfer charges. Confirm the latest schedule of charges at your branch and keep your account active to avoid dormancy.

4. Who Should Invest in ELSS?

ELSS suits investors seeking long-term wealth creation with 80C tax benefits and who can accept equity market movement during the three-year lock-in. A five-year plus horizon is sensible for smoother outcomes. SIPs can help manage entry points. Consider pairing ELSS with PPF or NSC for balance within saving schemes in India.

5. How to Choose the Best Saving Schemes in India?

Start with goals and time horizon, then shortlist by liquidity, tax rules, and cash flow preference. Compare safety, interest review cycles, and documentation. Use a simple checklist and diversify across two or three products. Combine small savings with high-quality bonds for income and balance. Bondbazaar offers education to compare bond choices alongside small savings.

6. How do saving schemes help in tax planning?

PPF, NSC, NPS, and 5-year TD can qualify under Section 80C, while NPS also allows an extra deduction under 80CCD(1B). Sections 80TTA and 80TTB may apply to savings interest. Map deductions to your slab, avoid overfunding one product, and maintain proofs. Balance tax planning with liquidity and goal timelines in saving schemes.

7. What is the difference between PPF and NSC?

PPF runs for 15 years with tax-free interest and 80C benefits, extendable in blocks of five years. NSC has a 5-year tenure, interest is compounded and taxable on maturity, with 80C benefit on investment. PPF suits long-term retirement savings. NSC fits medium-term goals where a fixed maturity suits cash flow planning.

8. What is the Senior Citizens Savings Scheme (SCSS)?

SCSS is a five-year account for eligible senior citizens, extendable by three years. It pays interest quarterly to a linked savings account and offers 80C benefit on the amount invested, subject to limits. It is designed to create regular post-retirement income. Understand premature closure rules and nomination before you open the account.