In India, Which Saving Schemes You Should Invest in?
Reviewed by: Fibe Research Team
- Updated on: 10 Apr 2023
- Published on: 21 Oct 2021
Reviewed by: Fibe Research Team
Highlight: Choosing the right saving schemes in India can help you reach your financial goals in a lot less time and help you grow your savings exponentially.
‘Do not splurge your money. Invest judiciously’
This is that one piece of advice that you will start getting the moment you hit twenty-five. The problem is that while everybody keeps asking you to invest or save your money judiciously, not many people tell you how to? Or even where to invest, exactly.
To define saving, it is the act of setting aside money for future expenses, or unforeseen or emergent situations in the future. It is the first step towards financial security. Emergencies do not come with announcements. One might lose their job, have a medical emergency, or plan to start their own business. As a result, it is always wise to set aside three to six months of your income for future use.
For any individual, savings are an emergency cushion in times of financial crisis or a provision for marriage, education, vacation, or big purchases. Every individual must set aside a part of their income as savings regardless of the purpose they are put to use. All of us have seen our mothers and grandmothers keep aside some additional money for the rainy days tucked in that humble jar of rice. Over the years, however, popular preferences for investing money have changed.
Several financial institutions offer many saving schemes and options, the most common ones being bank savings accounts followed by fixed deposits. People, these days, like to invest their money in varied saving schemes, as these not only help them keep their capital safe and earn a significant amount of interest on it but also earn tax exemptions. Any individual looking for viable options to invest their money can choose from several government schemes, bank offerings, and capital market instruments like mutual funds.
Here are six saving schemes in India that you can invest in to reach your financial goals in due time.
Also read: Investment Guide For The First Jobbers
The National Pension Scheme (NPS) is governed by the Pension Fund Regulatory And Development Authority. The minimum annual amount that one needs to contribute for an NPS tier-1 account is now 1,000 INR. Earlier, this amount used to be 6,000 INR. NPS is one of those saving schemes in India that are long-term and retirement-focused.
The investment plan is a mixture of multiple investment avenues such as equity, fixed deposits, corporate bonds, liquid funds, and government funds. One can choose to invest in the equities offered by NPS depending on the amount of risk they can withstand. The return from this saving scheme in India as of July 2019 was 10.5% (for a period of 3 years). It has a lock-in period of 3 years for government employees, whereas, for private employees, there is no lock-in period. Exclusive tax benefits provided to an NPS subscriber include the additional deduction of 50,000 INR over and above the tax exemption of 1.5 lakh which is available under section 80C of the Income Tax Act.
PPF is a long-tenured investment plan of a minimum of 15 years. Due to its stretched tenure, this saving scheme in India has a huge compounding tax-free interest, particularly in the later years. The money you add to your PPF account is tax-deductible under section 80C of the Income Tax Act of 1961.
Additionally, the interest reaped and the principal assured is supported by a sovereign guarantee from the government, making it one of India’s safest investments cum saving schemes. However, the interest rate on PPF is reassessed and changed every quarter by the government. Currently, a return rate of 7.1% is being offered to the public for the second quarter of 2021. The interest rate is evaluated on a monthly basis. The minimum deposit amount is INR 500 and the maximum INR 1.5 lakhs for every year. The interest is calculated on any deposit made into the PPF account before the 5th of every month.
This scheme is popularly called the tax-saving scheme. ELSS investments can help you earn tax deductions of up to INR 1.5 Lakhs under section 80C of the Income Tax Act. This savings scheme in India has a common lock-in period of 3 years, which is compulsory in order to get gains. The profit further enjoys an exception of about 1 lakh.
Beyond this amount, the profit is taxable at the rate of 10%. Usually, the average return for a tax-saving ELSS over the five-year and ten-year categories is about 15% and 13% respectively. However, it does not have a fixed interest rate.
A mutual fund is a corporation that draws money from several investors and invests the money in securities such as stocks and short-term debt. Investors buy shares in mutual funds. Every share depicts an investor’s portion of ownership in the fund and the income it yields.
This type of mutual fund scheme invests majorly in equity stocks. One plus point about these mutual funds is that they can be both actively managed or passively managed. The average rate of return for these saving schemes in India tends to vary between 9.47%- 13% depending on the company you are investing in.
These saving schemes in India are best suited for individuals who want steady returns. These mutual funds mainly capitalize on fixed-interest generating securities like corporate bonds, government securities, treasury bills, commercial paper, and other money market instruments. However, these mutual funds are not risk-free.
These savings schemes in India are quite similar to a regular savings account. Unlike the other saving schemes mentioned in this list, it promises the individual a regular source of income in the form of returns credited to the individual’s account every month. With an interest of 6.6% p.a, currently, the scheme is only open for resident Indians. One can deposit a sum ranging from INR 1500 to INR 4.5 Lakhs. It has a lock-in period of one year and a maturity period of five years.
This is one of the most popular saving schemes in India. FD is a financial instrument that helps an individual bag more interest than a normal savings account that banks and other NBFCs provide. Also known as term deposits or time deposits, they allow the investor to enjoy additional benefits from the bank, such as loans against FD certificates at competitive interest rates. The FD provides a tax reduction of 10%, however, this reduction is only made if the interest amount for the financial year exceeds Rs 10,000.
The average interest rate of these saving schemes in India varies from 1.5% p.a- 6.5% p.a. with a minimum deposit amount of INR 1000. They have a lock-in period of 5 years. These saving schemes in India do not offer any tax deduction.
By choosing the right kind of scheme, suited to your requirements, you can ensure that you have a steady income and money at hand even after you retire. Smart investing can help you reach your financial goals in a lot less time and help you grow your savings exponentially.
Also read: Investment Advice for Millennials: The Whats, The Whys , And The Hows
The saving schemes given above aren’t an exhaustive list but surely are the most feasible routes to save prudently and judiciously. You can also explore instant loans, salary cards, and other finance options with Fibe. With Fibe you can make more informed choices regarding your financial needs.
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