The stock market is not for the weak heart. Conservative investors prioritize the safety of capital and returns above everything else. If you are looking at 'safe return' investment choices, you should take a look at age-old schemes. The government offers various saving schemes that are low on risk, but provide decent returns. The savings plan vary in their interest rates, investment horizons and tax treatments. Check out the various types of savings schemes in India along with their features and benefits.
National Savings Recurring Deposit
This is post office RD. It has a tenure of 5 years. You get 7.2 % interest annually (quarterly compounded). The account can be continued for another 5 years on year to year basis. The minimum investment is Rs 10 per month, but there is no maximum limit. An account can be opened by cash or cheque. Nomination facility is available at the time of opening and after opening of an account. Account can be transferred from one post office to another. Any number of accounts can be opened in any post office. Accounts can be opened in the name of minor and a minor of 10 years and above age can open and operate the account. There is a rebate on advance deposit of at least 6 installments.
National Savings Time Deposit
This is a post office fixed deposit type scheme. The interest is payable annually but calculated quarterly. The minimum investment is Rs 100, but there is no maximum limit. As per the India Post website, interest rates from 01.07.2019 are 6.9% for 1 year account, 2 year account and 3 year account, while 5 year account fetches 7.7 % interest. Such an account may be opened by an individual. The account can be opened by cash or cheque.
Nomination facility is available at the time of opening and also after opening of an account. Account can be transferred from one post office to another. Any number of accounts can be opened in any post office. Do remember that in CBS post offices, when any a Time Deposit (TD) account is matured, the same TD account will be automatically renewed for the period for which the account was initially opened. The investment under 5 Years TD qualifies for the benefit of Section 80C of the Income Tax Act, 1961.
National Savings Monthly Income
This is good old MIS scheme, which is popular amongst senior citizens. It pays 7.9 % per annum payable monthly. The maximum investment limit is Rs 4.5 lakh in a single account and Rs 9 lakh in a joint account. That means an individual can invest a maximum of Rs 4.5 lakh in MIS (including his/her share in joint accounts). This account may be opened by an individual. Account can be opened by cash/cheque. Nomination facility is available at the time of opening and also after opening of an account.
Account can be transferred from one post office to another. A Post Office MIS account has a maturity period of 5 years. The account can be prematurely en-cashed after one year but before 3 years at the discount of 2% of the deposit and after 3 years at the discount of 1% of the deposit. The discount means a deduction from the deposit. A bonus of 5% on principal amount is admissible on maturity in respect of MIS accounts opened on or after 8.12.07 and up to 30.11.2011. No bonus is payable on the deposits made on or after 1.12.2011.
National Savings Certificates (VIII Issue)
The NSC has a maturity of 5 years. It pays 7.9 % compounded annually but payable at maturity. For instance, Rs 1 lakh would grow to Rs 1.46 lakh after 5 years. The minimum investment is Rs 100 but there is no maximum limit of investment.
Do note that NSC deposits qualify for tax rebate under Sec. 80C of IT Act. The interest accruing annually but deemed to be reinvested under Section 80C of IT Act. In case of NSC VIII, the transfer of certificates from one person to another can be done only once from the date of issue to the date of maturity.
Public Provident Fund (PPF)
The PPF account or Public Provident Fund scheme is one of the most popular long-term saving-cum-investment products. It can be used for long-term wealth creation. PPF has a 15-year maturity, and the facility to extend the tenure by 5 years. PPF offers 7.(% interest, compounded annually. The interest rate is set by the government every quarter. PPF scores over many other investment options mainly because your investment is tax-exempt under section 80C of the Income Tax Act (IT) and the returns from PPF are also not taxable. You can invest a minimum of Rs 500 and a maximum of Rs 1,50,000 in a financial year. Any Indian citizen can open a PPF account. You can take a loan on your PPF account and partial withdrawals are also permitted. PPF accounts cannot be held jointly, though you can make a nomination. You must compulsorily make a minimum deposit of Rs 500 each year in your PPF account.
Life insurance endowment
The endowment plan is a life insurance policy that provides you with a combination of an insurance cover as well as a savings plan. It helps you in saving regularly over a specific period of time. You will be able to get a lump sum amount on policy maturity if the policyholder survives the policy term. Importantly, the policyholder gets his/her sum assured on a fixed date in the future. In case of the unfortunate death of the policyholder during the policy tenure, the insurance company will pay the sum assured (plus the bonus, if any) to the nominee of the policy. There are many types of endowment plans, here you will choose full /with profit endowment.
Under this plan, the sum assured will be provided to the policyholder. This amount is guaranteed right from the start of the policy. The final maturity payout provided may be higher depending on the bonuses announced from time to time by the company. The policyholder is entitled to get tax exemption on both premium payments, maturity and final payouts under Section 80C and Section 10(10D) of the Income Tax Act respectively.
Traditional endowment policies are considered safe as compared to the other investment option such as the mutual fund or ULIPs because the amount here is not directly invested in equity funds or stock market avenues. Endowment policy offers an avenue for long term savings as you can choose a policy term ranging from 10 to 40 years. (The writer is a journalist with 14 years of experience)