scorecardresearchWhat are small savings schemes and why should you invest in them?

What are small savings schemes and why should you invest in them?

Updated: 15 Apr 2023, 10:30 AM IST
TL;DR.

The interest rates offered by small savings schemes are usually higher than those given by fixed deposits (FDs) of commercial banks

There are a number of small savings schemes such as PPF, senior citizen savings scheme, national savings certificate, Sukanya Samriddhi Yojana, Kisan Vikas Patra among others

There are a number of small savings schemes such as PPF, senior citizen savings scheme, national savings certificate, Sukanya Samriddhi Yojana, Kisan Vikas Patra among others

Young retail investors tend to explore numerous investment instruments ranging from mutual funds to bonds, and fixed deposits (FDs) to post office schemes. Among different investment alternatives, young investors can consider investing in small savings scheme.

This is because the interest rates offered by several small savings schemes are higher than those of fixed deposits of commercial banks.

Recently, Union Minister of State for Finance, Pankaj Chaudhary in a written reply in Lok Sabha, said: “Prevailing interest rates on Small Savings Schemes are better than those being offered through similar financial instruments being made available by leading Scheduled Commercial Banks. Rates applicable of Small Savings Schemes are being periodically revised.”

There are a number of small savings schemes such as Public provident fund (PPF), senior citizen savings scheme (SCSS), national savings certificate (NSC), Sukanya Samriddhi Yojana (SSY), Kisan Vikas Patra (KVP) and several deposit schemes at the post office.

What are small savings schemes?

These are savings instruments managed by the Government of India. They are meant to encourage retail investors to save regularly regardless of their age and social class.

Not only do they give returns that are higher than bank FDs, but they also come with a sovereign guarantee and tax benefits.

Investment in small savings scheme enable investors to claim income tax exemption under section 80C of the Income Tax (I-T) Act, 1961. It is vital to note that to be able to claim exemption, one should now opt for the old tax regime since the new tax regime (i.e., the default regime) doesn’t entitle tax payers to claim tax exemptions.

The current interest rates

The ministry of finance recently raised the interest rates for small saving schemes by up to 70 basis points for the first quarter of financial year 2023-24 starting April 1.

This means retail investors are set to earn a higher income on their investment in small savings scheme.

The senior citizen savings scheme saw an increase of 20 basis points from 8 percent to 8.2 percent. The monthly income account scheme saw an increase of 30 basis points from 7.1 percent to 7.4 percent.

The national savings certificate (NSC) reported an increase of 70 basis points from 7 percent to 7.7 percent. The Kisan Vikas Patra reported an increase of 30 basis points from 7.2 percent to 7.5 percent.

Finally, Sukanya Samriddhi Account Scheme reported an increase of 40 basis points from 7.6 percent to 8 percent. Public provident fund (PPF) scheme's interest rate, however, will continue to be the same at 7.1 percent.

 

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First Published: 15 Apr 2023, 10:30 AM IST