Small savings instruments

Aakash Ahuja
4 min readAug 21, 2021

Investments are not only for those who have a big corpus. India has a wide variety of savings instruments available that ensure all kinds of amounts can be invested for better returns. The small investment infrastructure in India truly encourages investors to save regularly. Referred to as small saving instruments, their main attraction is the implicit guarantee of the government, which is the borrower.

Let us look at some of them.

Many of these schemes are offered through the post office and select banks. The saving schemes currently offered by the government are:

Public Provident Fund (PPF)
Senior Citizens’ Saving Scheme (SCSS)
National Savings Certificate (NSC)
Post Office Schemes and Deposits

The rate of interest on an investment made in these schemes, except PPF, on a particular date remains unchanged for the entire duration of the investment till maturity, irrespective of the revision in subsequent years.

Let us look at them in detail.

Public Provident Fund
The objective of the PPF is to provide a long term retirement planning option to those individuals who may not be covered by the provident funds of their employers or may be self-employed. PPF is a 15-year deposit account that can be opened with a designated bank or a post office. A person can hold only one PPF account in their name except an account in the name of a minor child to whom he or she is a guardian.

At the time of writing, the minimum deposit required in this account is Rs. 500. The maximum limit is Rs. 1,50,0001. Regular deposits have to be made in the account over the term of the fund. Penalties apply if the minimum deposit is not made in a financial year. Interest is accumulated and not paid out. Partial withdrawal and loans against PPF are allowed under certain conditions. Contribution to PPF is eligible for deduction under sec 80C of Income tax Act 1961. Interest is completely tax free and is 7.1% at the time of writing. Unlike other instruments which are eligible for tax deduction under Section 80C, PPF enjoys an exempt-exempt-exempt (EEE) status, where withdrawal on maturity is also not taxed.

National Savings Certificate (NSC)
National Savings Certificates are issued by the government and available for purchase at the post office. NSCs are issued with tenors of 5 years . The interest on these instruments at the time of writing is 6.8% for a 5 year term. Interest is compounded half-yearly and accumulated and paid on maturity. The certificates can be bought by individuals on their own account or on behalf of minors. Accrued interest is taxable, but is it deemed to be reinvested and therefore the interest becomes eligible for Section 80C benefits.

Senior Citizens’ Saving Scheme (SCSS)
The Senior Citizens’ Saving Scheme is a savings product available to only senior citizens of age 60 years or above on the date of opening the account. Under some conditions, the age limit may be reduced in case of an individual retiring on superannuation or otherwise, or under VRS or special VRS. The account can be opened at any post office undertaking savings bank work and a branch of a bank authorized to do so. The term for the scheme is 5 years. Maximum limit of investment is Rs. 15 lakhs. The benefit of section 80C is available on investment but interest is fully taxable. Interest rate at the time of writing stands around 7%.

Post Office Monthly Income Scheme (POMIS)
The Post Office Monthly Income Scheme provides a regular monthly income to the depositors. This scheme has a term of 5 years. Minimum amount of investment in the scheme is Rs. 1500, and the maximum amount is Rs. 4.5 lakhs for a singly held account and Rs. 9 lakhs of the account is held jointly.

Post Office Time Deposits (POTD)
Post Office Time Deposits are similar to fixed deposits of commercial banks. The post office deposits with terms of one year, two years, three years and five years. The account can be held singly in individual capacity or jointly by a maximum of two holders. The minimum deposit amount is Rs. 200. There is no maximum limit. The interest rates on these accounts are reset annually. Interest rates are compounded quarterly and are subject to tax. The five year term deposit is eligible for tax benefits under Section 80C of the Income Tax Act, 1961

Post Office Recurring Deposit
Post Office Recurring Deposit (RD) accounts can be opened by resident individuals. An individual can hold any number of RD accounts, singly or jointly. Deposits can be made at a minimum amount of Rs. 10 per month and in multiples of Rs. 5 thereafter for every calendar month. There is no maximum limit. Interest is payable on a quarterly compounded basis. The maturity amount with interest is paid at the end of the term. Interest is taxable.

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