For an individual investor, small saving schemes (‘SSS’) are one of the main investing avenues. It encompasses Sukanya Samridhi Yojana (‘SSY’), Kisan Vikas Patra, Public Provident Fund, National Savings Certificate, and so on. Effectively, SSS helps to enable investors’ investment patterns in all age groups and provides an investor with guaranteed returns. Here are some SSSs and their benefits you must be mindful of before parking your funds.
National Pension Scheme
As approved under section 80C of the Income-tax Act, 1961, NPS allows for an additional deduction of 50,000 over and above 150,000. This is an imminent and substantial advantage (i.e. Rs 15,000, minus cess/surcharge, in the highest tax bracket) for an investor to begin with. The NPS is a pension plan that enables players, until retirement, to contribute a certain amount on an annual basis. Upon retirement, the investor earns a limit of 60 percent of their savings as a lump sum and the investor needs to purchase an annuity scheme for the outstanding amount (i.e. a minimum of 40 percent) (for periodic income after retirement). But there is a flaw in the scheme, the capital is locked in before the age of 60, indicating it is only ideal for retirement objectives.
Sukanya Samriddhi Yojana
SSY is one of the schemes that the investor can use to prepare for child education and a daughter’s marriage objective for an individual investor who has a daughter(s) under the age of 10. SSY already provides the investment with a return of 7.6 percent. Where the maximum amount that can be deposited is Rs 150,000, the investor is required to deposit the sum into the account for a term of 15 years from the date of the opening of the account. The investment matures 21 years from the date of issuance of the account. The explanation why SSY is effective for investors is due to the tax incentive it offers-the investor can take advantage of a maximum tax benefit of Rs 1.5 lakh under Section 80C of the Income-Tax Act. Furthermore, the interest earned and the maturity amount are both exempted from tax.
Senior Citizen Savings Scheme
A limit of Rs 15 lakh can be invested in SCSS by Indian citizens over the age of 60, either individually or jointly. The initial tenure of the scheme is five years, and can only be extended once over a span of three years. An interest rate of 7.4 percent is provided by SCSS and the interest is payable quarterly under SCSS. Deposits rendered under the SCSS are liable for a tax rebate of up to Rs 1,50,000 annually under Section 80C. This is advantageous since the bulk of deductions eligible for senior citizens under section 80C are not acceptable. The interest earned under SCSS is subject to taxation in general. However, under section 80TTB, the investor can claim a tax deduction of up to Rs 50,000 on the interest earned under this scheme. This plan is ideal for senior citizens because at an elderly age, where risk aversion has petered out it offers strong guaranteed returns.
National Savings Certificate
The NSC is a 5-year fixed income plan, in which interest income is reinvested in general. An individual can make contributions in NSC annually of up to Rs 1.5 lakh. In fact, the interest received on the instrument is taken into consideration in the tax free status, since it is reinvested in the NSC. For a period of 5 years with compounding benefits, NSC promises a stable return. For risk-averse investors with financial assets, this is convenient.
Public Provident Fund
PPF comes with both savings and tax benefits investment vehicle in which investors can invest an amount over a period of 15 years (which can be extended in blocks of 5 years and get returns of 7.1 percent per annum. Under Section 80C of the Income Tax Act, the amount invested annually is exempted from tax to the maximum of Rs 150,000 per year. Again, PPF is the investors’ very safe tax-free alternative and helps them to acquire long-term capital. PPF is effective for today’s objectives of 15-20 years (i.e. purchasing a car or contributing to owning a property). Analytically, spending Rs 1,50,000 annually over a 15-year period will provide, under this scheme, around Rs 40 lakh at the end of the period.
To assess the tool for investment, an investor should always be conscious of his/her risk appetite, savings, and potential objectives. An individual should not select an investment randomly and then pledge it to a purpose. Instead, an investor can first select an objective and then pick an intimate investment partner for it.