You are here

Small Saving Schemes in India: Everything you Need to Know

aditiahuja's picture
Submitted by aditiahuja on Fri, 11/02/2018 - 10:28

Savings are an important feature in every household budget. But where should you put your savings in order to earn good returns? In this article, let’s find out about some of the best small saving schemes in India.

1- Public Provident Fund
The Public Provident Fund (PPF) is one of the most popular small best saving schemes in India. It is considered a very safe investment avenue because it is backed by the Government of India. As a result, investors are confident about the protection of their capital. Currently, the PPF investment offers an interest rate of 7.6% per annum on its deposits.

You can open a PPF account in any post office or bank branch across the country. However, there is a minimum lock-in period of 5 years. You can make a minimum deposit of Rs. 500 per year and a maximum of Rs. 1.5 lakh. One of the best features of the PPF is that the interest on the fund is not taxable. Investments made in PPF (upto Rs. 1.5 lakh) are eligible for tax deductions under Section 80C of the Income Tax Act.

2- National Saving Certificate
The National Saving Certificate (NSC) is another small saving instrument backed by the Government of India. You can open an NSC account at any post office in India. Like the PPF, it offers guaranteed returns to the investor. This scheme is suitable for investors interested in steady income and tax savings. And while there is no maximum limit on how much you can invest in NSCs, it is important to remember that only investments up to Rs. 1.5 lakh per year are eligible for tax deductions under Section 80C of the Income Tax Act.

3- Fixed Deposits
Investing in fixed deposits is one of the safest to park surplus funds and earn a regular income. One of the most interesting features of fixed deposits that make it best investment plan is the flexible time period. For instance, there are FDs with a maturity period of just 7 days while there are others where you can invest for more than a decade.

This flexibility in maturity periods allow great freedom for investors to choose a particular plan based on their requirements. In case of an emergency where you require money at a short notice, you can make a premature withdrawal on your FD. This is possible by paying a premature closure penalty.
FDs are suitable for meeting your regular financial obligations like utility bills or monthly grocery shopping bills because you can benefit from a steady stream of income through interest payments.

4- Mutual Funds
Until now, we have discussed a lot about debt-oriented saving options like PPF, NSC and fixed deposits. But what if you wanted to benefit from both debt and equity returns? In that case, mutual funds are the right option for you. Here, you can invest in a variety of funds based on your financial requirements and risk appetite. The returns you earn can depend on the type of fund you choose. For instance, equity funds tend to offer higher returns but they are also considered riskier than debt funds. This is because the returns on equity funds are dependent on the performance of the stock market. In case the stock market performs poorly, it is possible to face a loss on the invested capital.

A good option is to invest in a mix of equity and debt to minimise your losses and increase your returns. The best method is to invest in mutual funds through Systematic Investment Plans (SIPs). Under this, you can invest a fixed amount regularly. This can be on a monthly, quarterly or semi-annual basis. You can start with small contributions of Rs. 500-1,000 per month. Over time, you can increase your investments for larger savings in the long term.

5- Equity Linked Saving Schemes (ELSS)
Tax saving is a great way to increase your finances. But what if you could benefit from high returns in addition to tax savings? This is possible through ELSS funds. These funds invest your money in equity markets. As a result, you have the potential to earn big returns over time. Coming to tax, you can save tax up to Rs. 1.5 lakh each year according to deduction under section 80C of the Income Tax Act. Besides, ELSS funds have the shortest lock-in period of 3 years compared to other tax saving options. In addition, the dividends you earn on ELSS funds are tax-free. Therefore, if you are interested in a good tax saving avenue combined with high market linked returns, ELSS funds are the way to go.

Conclusion
Small saving schemes are extremely important avenues of saving and investing money. Through steady returns you earn from small saving schemes, you can meet your regular expenses and also your future financial goals. And with many schemes having government backing, investors can be assured their capital is in safe hands.