Introduction

Savings schemes refer to various investment options that are designed to help individuals save money and earn interest or other returns on their savings. These schemes are usually offered by banks, financial institutions, and government organizations.

Savings schemes may come in different forms, such as savings accounts, fixed deposits, recurring deposits, public provident fund (PPF), national savings certificate (NSC), mutual funds, and pension plans, among others.

Savings schemes are a great way to accumulate wealth over time while earning a competitive rate of return. They are also suitable for people who want to save regularly and have a long-term financial goal, such as building a retirement corpus or saving for a child’s education.

Type of Saving Schemes in India

There are several types of savings schemes in India available to investors, some of which are listed below:

 1. Tax Saving Fixed Deposits

Investors to save taxes under Section 80C of the Income Tax Act, 1961. These FDs come with a lock-in period of 5 years, and the interest earned on the deposit is taxable.

The minimum investment amount for tax-saving FDs varies from bank to bank, but it typically ranges from Rs. 1,000 to Rs. 10,000. The interest rate offered on tax-saving FDs is usually higher than regular FDs, but lower than other tax-saving instruments such as PPF and NSC.

Investors can claim a tax deduction of up to Rs. 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961, by investing in tax-saving FDs. The interest earned on these FDs is added to the investor’s taxable income and is subject to tax as per the applicable tax slab.

It is important to note that tax-saving FDs come with a lock-in period of 5 years, which means the investor cannot withdraw the money before the maturity of the FD. If the investor needs to withdraw the money before the maturity period, they may have to pay a penalty or forfeit the interest earned on the deposit.

2. Unit Linked Insurance Plan (ULIP)

A Unit Linked Insurance Plan (ULIP) is a type of insurance policy that provides both insurance coverage and investment opportunities to the policyholder. It is a combination of insurance and investment, where a part of the premium paid by the policyholder goes towards insurance coverage, and the remaining amount is invested in various market-linked investment instruments such as stocks, bonds, and mutual funds.

ULIPs allow the policyholder to choose from a range of investment options based on their risk appetite and financial goals. The policyholder can also switch between investment options or allocate their funds in different proportions based on their changing financial needs.

The policyholder can choose to pay the premium as a lump sum or in instalments, and the policy can be for a fixed term or for the policyholder’s lifetime. Upon maturity of the policy, the policyholder receives a lump sum pay out, which includes the insurance coverage and the returns earned on the investment portion of the premium.

ULIPs also offer tax benefits under Section 80C of the Income Tax Act, 1961, where the premium paid towards the policy is eligible for tax deduction up to Rs. 1.5 lakh per annum. Additionally, the returns earned on the investment portion of the premium are tax-free under Section 10(10D) of the Income Tax Act, 1961, subject to certain conditions.

It is important to note that ULIPs come with certain charges such as premium allocation charges, policy administration charges, fund management charges, and mortality charges, which can reduce the returns earned on the investment portion of the premium. Therefore, it is advisable to understand the charges and terms and conditions of the ULIP before investing in it.

3. Equity Linked Savings Scheme (ELSS)

Equity Linked Savings Scheme (ELSS) is a type of mutual fund scheme that provides tax benefits to investors under Section 80C of the Income Tax Act, 1961. ELSS invests a major portion of its corpus in equity or equity-related instruments, and it comes with a lock-in period of 3 years.

ELSS is considered a tax-saving investment option with the potential to provide higher returns than other traditional tax-saving instruments such as fixed deposits, Public Provident Fund (PPF), and National Savings Certificate (NSC).

Investors can invest in ELSS through a lump sum or a Systematic Investment Plan (SIP) mode, where they can invest a fixed amount at regular intervals. ELSS offers flexibility in terms of the investment amount, which can range from as low as Rs. 500 to as high as the investor wants.

The returns earned on ELSS are subject to market risks and are not guaranteed. However, historically, ELSS has provided higher returns than other tax-saving instruments in the long run.

ELSS also offers tax benefits to investors. The amount invested in ELSS is eligible for tax deduction up to Rs. 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961. Additionally, the returns earned on ELSS investments are tax-free up to Rs. 1 lakh under Section 10(10D) of the Income Tax Act, 1961.

It is important to note that ELSS comes with a lock-in period of 3 years, which means the investor cannot withdraw the investment before the completion of the lock-in period. If the investor needs to withdraw the investment before the lock-in period, they may have to pay a penalty or forfeit the tax benefits.

4. Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme designed to encourage parents or legal guardians to save for the education and marriage expenses of their girl child. The scheme was launched in 2015 under the ‘Beti Bachao Beti Padhao’ campaign.

Under SSY, parents or legal guardians of a girl child can open an account in her name before she reaches the age of 10 years. Only two accounts are allowed for a family, and the account can be opened in any post office or authorized banks across India.

The minimum investment amount for SSY is Rs. 250, and the maximum investment amount is Rs. 1.5 lakh per annum. The account can be operated for a maximum of 21 years from the date of opening, and the maturity period is 21 years from the date of opening or the date of marriage of the girl child, whichever is earlier.

The interest rate on SSY is determined by the government and is subject to change every quarter. Currently, the interest rate is 7.6% per annum, compounded annually.

The contributions made towards the SSY account are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. Additionally, the interest earned on the account and the maturity amount are tax-free under Section 10(11A) of the Income Tax Act, 1961.

It is important to note that premature closure of the SSY account is allowed only in the event of the death of the account holder or in cases of extreme compassionate grounds such as a life-threatening illness. The account holder can also withdraw up to 50% of the balance amount when she reaches the age of 18 years if she has passed the 10th standard examination or is pursuing higher education.

 5. National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a government-backed retirement savings scheme launched by the Pension Fund Regulatory and Development Authority (PFRDA) in 2004. The scheme is designed to provide retirement income to the citizens of India.

Under the NPS, both individuals and corporate subscribers can contribute towards a retirement account, which is managed by Pension Fund Managers (PFMs) authorized by the PFRDA. The scheme is open to all Indian citizens aged between 18 to 65 years.

The NPS offers two types of accounts: Tier-I and Tier-II. The Tier-I account is a mandatory account that requires a minimum contribution of Rs. 500 per annum and has a lock-in period until the age of 60 years. The contributions made towards the Tier-I account are eligible for tax deduction under Section 80C of the Income Tax Act, 1961, up to Rs. 1.5 lakh per annum.

The Tier-II account is a voluntary account that allows subscribers to withdraw their funds at any time without any penalties. However, the contributions made towards the Tier-II account are not eligible for tax deduction.

Under the NPS, subscribers can choose their investment options from various asset classes such as equity, debt, and government securities. The NPS also provides an option for subscribers to choose an active or a passive investment strategy.

Upon retirement, the subscribers can withdraw up to 60% of the accumulated corpus as a lump sum, and the remaining 40% is used to purchase an annuity to provide a regular pension income.

The NPS offers various tax benefits to subscribers, such as tax deduction on contributions, tax-free returns on investment, and tax exemption on annuity income up to Rs. 5 lakhs per annum.

It is important to note that the NPS comes with market risks, and the returns on investments are not guaranteed. Therefore, it is advisable to understand the investment options, charges, and terms and conditions of the NPS before investing in it.

 Pradhan Mantri Vaya Vandhana Yojana (PMVVY)

Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a government-backed pension scheme launched in May 2017 for senior citizens aged 60 years and above. The scheme is implemented by the Life Insurance Corporation of India (LIC) and is available until March 31, 2023.

Under the PMVVY, senior citizens can invest a lump sum amount, which will provide them with a fixed pension for the rest of their lives. The minimum investment amount under the scheme is Rs. 1.5 lakh, and the maximum investment amount is Rs. 15 lakhs.

The pension amount under the PMVVY is fixed and depends on the investment amount, the age of the subscriber, and the frequency of payment. The pension payment can be made monthly, quarterly, half-yearly, or yearly.

The PMVVY provides a guaranteed pension of 7.4% per annum for the entire policy term of 10 years. The scheme also offers a death benefit, under which the nominee or legal heir of the subscriber will receive the entire investment amount in case of the subscriber’s death.

The PMVVY comes with several tax benefits. The investment made towards the scheme is eligible for tax deduction under Section 80C of the Income Tax Act, 1961, up to a maximum of Rs. 1.5 lakh per annum. The pension income received by the subscriber is taxable as per the income tax slab rates.

It is important to note that premature withdrawal of the PMVVY is allowed only in case of the subscriber’s critical illness or the death of the subscriber or his/her spouse. The scheme also comes with a surrender value, which is payable in case the subscriber wants to exit the scheme before the completion of the policy term.

Overall, PMVVY is an attractive investment option for senior citizens looking for a guaranteed pension income for the rest of their lives.

 Senior Citizen Saving Scheme (SCSS)

Senior Citizen Savings Scheme (SCSS) is a government-backed savings scheme launched in 2004 for senior citizens aged 60 years and above. The scheme is implemented by the government of India and is available through all designated banks and post offices.

Under the SCSS, senior citizens can invest a lump sum amount and earn a fixed interest rate for a period of 5 years, which can be extended for another 3 years. The minimum investment amount under the scheme is Rs. 1,000, and the maximum investment amount is Rs. 15 lakhs.

The interest rate on the SCSS is revised by the government on a quarterly basis and is currently set at 7.4% per annum. The interest on the SCSS is payable quarterly and is taxable as per the income tax slab rates.

The SCSS comes with several tax benefits. The investment made towards the scheme is eligible for tax deduction under Section 80C of the Income Tax Act, 1961, up to a maximum of Rs. 1.5 lakh per annum. The interest earned on the scheme is taxable, but there is no tax deduction at source (TDS) up to Rs. 50,000 per annum.

Under the SCSS, premature withdrawal is allowed only after completion of 1 year from the date of account opening. However, a penalty of 1.5% of the deposit amount is levied if the account is closed prematurely. On maturity, the account can be extended for another 3 years with the prevailing interest rate at the time of extension.

Overall, the SCSS is an attractive investment option for senior citizens looking for a fixed income source with higher returns than regular savings accounts.

 Conclusion

Savings schemes are a popular way for individuals to accumulate wealth over time, as they offer a safe and reliable way to invest money while earning a competitive rate of return.  There are various types of savings schemes available to investors, such as tax-saving fixed deposits, unit-linked insurance plans (ULIPs), and equity-linked savings schemes (ELSS). Tax-saving fixed deposits are ideal for those looking to save on taxes, while ULIPs are suitable for individuals who want both insurance coverage and investment opportunities. ELSS is a great option for those looking for higher returns and greater flexibility in terms of investment amounts. Investors must understand the charges, lock-in periods, and other terms and conditions associated with each type of savings scheme before investing.