Take a fresh look at your lifestyle.

A Comprehensive Guide to Understanding Savings Plans and Its Types

Saving schemes launched by the Indian government and other public sector financial institutions offer investment opportunities to its citizens. As such, most of the saving schemes were introduced to encourage healthy investing and saving habits among the people, along with increasing cash inflow into the nation’s economy. After all, keeping the money in a safety vault at home not only prevents its growth but also leads to a stagnation of wealth.

Different saving plan types might come with different features and benefits, but at the end of the day, they all offer sustained wealth appreciation at high-interest rates and even tax exemption. So, without further ado, let’s take a look at some of those saving schemes.

Equity-Linked Savings Scheme

ELSS is a type of mutual fund that is also known as a tax-saving fund. It has the shortest lock-in period comprising three years. The investment of at least 80% of the assets is in stocks, providing a higher long-term compounding rate among the other tax-saving funds.

Major Benefits:

  • No bounds on maximum investment
  • Tax deduction up to INR 1.5 lakh under Section 80C
  • Taxable interest at 10%
  • Taxable dividend at 10% as the dividend distribution tax

Unit Linked Insurance Plan

The Unit Linked Insurance Plans are a combination of insurance and investment. In these plans, the insurers keep aside a part of the amount for life insurance and the rest goes into debt or equity-based mutual funds. The division of the sum depends on the long-term goals of the investor.

Major Benefits:

  • Tax deduction up to INR 1.5 lakh under Section 80C
  • No bounds on maximum investment
  • Non-taxable interest
  • Interest rates changes as per fund performance

Sukanya Samriddhi Yojana

It is the government saving scheme focused on the empowerment of the girl child below ten years of age. Parents or legal guardians can have a maximum of two accounts for two girl children. The account reaches maturity after twenty-one years of opening it or when the girl marries once she is 18 years old.

Major Benefits:

  • The interest rate of 8.5% PA
  • Range of investment amount: INR 1,000 to 1.5 lakh annually
  • Tax deduction up to INR 1.5 lakh under Section 80C
  • Non-taxable interest

Pradhan Mantri Vaya Vandana Yojana

It is a pension plan that Life Insurance Corporation of India runs for senior citizens aged a minimum of sixty years. The government subsidises the plan and it was initiated in May 2017. The interest that you will earn on the investment is tax-exempt. The amount you invest is known as the purchase price.

Major Benefits:

  • Range of investment amount: INR 1,000 to 15 lakh annually
  • Assured return of 8% per annum monthly for ten years
  • Option to choose yearly/half-yearly/quarterly/ or monthly pension payment
  • Tax deductions allowed on Principal

National Pension Scheme

This saving plan aims to offer monthly income after the investor retires for the amount they invested while being employed. The accumulated amount for the duration of the scheme gets broken down through annuity plans and is paid to the investor each month after retirement. It forms a reliable and secure source of income for the retired employees of public and private organizations, though the regulations differ for both:

  • Central/State Government Employees: Deduction of 10% of monthly income and gaining an equal amount as the government’s contribution
  • Unorganized Sectors or MNC Employees: Works like all other long-term saving schemes and offers benefits after the pre-set tenure.

Public Provident Fund

The popularity of the public provident fund stems from the fact that it is a safe investment option that comes with multiple benefits. For instance, you can take a loan against the invested amount in the fund between the third and fifth year. The second loan is offered in the sixth year if the first loan gets paid in full.

Major Benefits:

  • The interest rate of 8.5% PA
  • Non-taxable interest
  • Range of investment amount: INR 500 to 1.5 lakh annually
  • Option to deposit a lump sum amount or opt for installments

National Savings Certificate

The advantage of tax-saving makes the National Savings Certificate a good investment option. You can obtain NSC from any post office. Since it has backing from the Government of India, it comes with low risk. At present, you can subscribe to NSC VIII with five-year tenure.

Major Benefits:

  • The interest rate of 7% to 8% PA
  • The minimum investment amount is INR 100
  • No upper limit on the amount of investment
  • Tax deduction up to INR 1.5 lakh under Section 80C

Post Office Savings Account

This savings account is your regular savings account with a better rate of returns. Additionally, it is safe and offers the facility of complete and partial withdrawal of the invested amount in case of financial needs. If you are an investor with a low-risk appetite, this scheme is the perfect choice for you.

Major Benefits:

  • An interest rate of 4% PA for single and joint accounts
  • Tax exemption of up to INR 10,000
  • Minimal risk exposure and guaranteed returns
  • Better interest rate than a usual savings account

Kisan Vikas Patra

It is a small savings certification plan launched by the government after 1988. Like the other government schemes, Kisan Vikas Patra was launched as a long-term avenue for wealth creation among farmers. In the course of time, it has emerged as a safe wealth creation option for Indian citizens with a low-risk appetite.

Major Benefits:

  • Deposited sum gets doubled at the end of the tenure
  • The minimum investment amount is INR 100
  • No upper limit on the amount of investment
  • A shorter time span of nine years and ten months

The Endnote

So, those were a few types of the best saving plans that you can consider in order to make your money grow. And as a final bit of advice – remember to check the features and benefits of any plan before zeroing in on it. It will help you select a scheme that meets your specific needs.

Comments are closed.