Which Type of Savings Plans Suit You?
Different savings plans are offered by banks, financial companies, and the government to motivate people to invest and earn returns. So, here are the top savings schemes.
Savings Plan Types
NSC (National Savings Certificate)
It’s a government-backed savings plan that offers assured returns with tax-saving benefits. You can invest in it at a post office. The lock-in period is 5 years. The government revises the interest rate once in each quarter to take a decision.
Nevertheless, the rate remains unchanged during the term after you buy the certificate. You can claim tax deductions on your investment up to ₹1,50,000, according to Section 80C. The interest is compounded annually and paid on maturity. Then the accrued interest is taxable under Section 80C and should be added to your total annual income.
RD (Recurring Deposit)
It’s a post office savings scheme ideal for those who want to invest less. You can start by investing ₹10 monthly and then in multiples of ₹5 in the following months. After 1 year, you can withdraw up to 50% of the whole balance. You can extend the investment term by 5 years.
You can open multiple RDs (even as joint accounts). They’re transferable between post offices. RD is a good avenue for regular investments and savings by small investors who want to take minimum risk to capital.
EPF (Employee Provident Fund)
It’s a savings plan structured as per the EPFO guidelines. An employee and an employer under this fund must contribute to a PF account in the employee’s name.
The Employee Provident Fund helps in long-term retirement planning for working people. The account can be transferred from employer to employer.
You can maintain the account until retirement. The employee and employer contribute 12% of the monthly salary to the PF account. The employee’s contribution qualifies for deduction as per Section 80C.
PPF (Public Provident Fund)
This long-term tax-free savings plan is government-backed. The money deposited in the account is eligible for tax deduction, according to Section 80C. The earned interest is exempt from taxes.
You can open an account in a post office or bank. The lock-in period is 15 years. After that, you can extend it in blocks of 5 years. Returns are calculated based on compound interest. You can invest ₹500-₹1,50,000 annually.
FD (Fixed Deposit)
It’s the safest investment vehicle. You can deposit any desired amount for a fixed term to earn interest based in the prevalent rate. You can enjoy flexibility regarding the frequency of interest payout and the tenure. The interest offered is much higher than that of a savings bank account.
If there’s an emergency, you can break the deposit or borrow an overdraft loan against the deposit. You can reinvest the interest to get a higher maturity amount. The interest can be subject to TDS for payments that exceed ₹40,000.
ELSS (Equity-Linked Savings Scheme)
These are tax-saving mutual funds. The investments qualify for tax deductions up to ₹1,50,000 under Section 80C. The lock-in period is 3 years. The returns are taxable as capital gains that up to ₹1,00,000 are exempt from taxes. Exceeding that, the returns are taxable at 10%.
Investments are made in a combination of equity and debt. The equity component offers more returns while the debt component helps beat volatility. The savings plan offers greater returns over a long term, above 5 years. A systematic investment plan is ideal for that and requires a minimum investment of ₹500.
Pick a plan that suits you the most. Before starting to invest, use a savings plan calculator to know the ideal amount of investment in the chosen scheme.
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