Indian Post offer individuals a variety of savings schemes to invest and earn a high rate of interest along with the added benefit of tax savings. These schemes are backed by the Indian Government and therefore investors can get guaranteed returns by investing in them. This article highlights 6 top guaranteed return post office savings schemes that an investor can invest in.
1. PUBLIC PROVIDENT FUND (PPF)
The Public Provident Fund (PPF) is a savings scheme provided by post offices that has a maturity period of 15 years and currently provides an interest rate of 7.1% p.a. (for FY 2022-23). The maximum annual investment limit is Rs 1,50,000/- and is eligible for a tax deduction under Section 80C of the Income Tax Act.
There is no age restriction for opening a PPF account and investments can be made in a lump sum or in installments, with a minimum investment of Rs. 500. The account can only be held in a single name and can also be opened for a minor. However the investment amount must not exceed the maximum limit of Rs 1,50,000/- per year.
The maturity period of PPF can be extended in blocks of five years, indefinitely after the initial 15 years. Premature closure of the account is only allowed after five years from account opening and only for specific reasons viz. serious illness, higher education of children and change in residential status of investor. Partial withdrawals are also permitted after five years from the end of the year in which the account was opened.
A loan up to 25 percent of the account balance can be taken from the second to the fifth year after account opening. Only one loan can be taken in a financial year and a second loan cannot be taken until the first loan is repaid. If the loan is repaid within 36 months of the loan being taken, the interest rate applicable on the loan will be 1% p.a. and if the loan is repaid after 36 months, then interest @ 6% p.a. will be applicable from the date the loan was disbursed.
The investment in PPF account qualifies for a tax deduction under Section 80C of the Income Tax Act and offers tax-free returns. However, the interest earned on the PPF account should be reported in the income tax return.
PPF is considered a good long-term risk-free investment option for those who wish to avail the dual benefit of capital protection and tax exemption.
2. POST OFFICE MONTHLY INCOME SCHEME (POMIS)
This is a savings scheme offered by the Indian Post Office that allows investors to earn guaranteed fixed monthly interest on their investments. Account under this scheme can be opened singly in the name of an individual, minor above the age of 10 years or jointly but restricted to 3 adults. POMIS is a safe option to invest in as it is backed by the government. POMIS accounts can be easily transferred from one post office to another. The maturity period for this scheme is 5 years, but the account holder has the option to continue earning interest for an additional 2 years after the maturity period has ended, as long as the proceeds from the matured account are not withdrawn. Penalty of 2% of amount invested is levied if the account is prematurely closed within 1 to 3 years of investment and if the account is closed after 3 years but before the maturity period of 5 years then 1% of the invested amount is deducted as penalty. This scheme may be suitable for those looking for a stable, low-risk investment that provides a regular income. However, it may not be suitable for those looking for higher returns or more flexibility in terms of investment tenure or amount.
3. SENIOR CITIZENS SAVINGS SCHEME (SCSS)
SCSS is a government-backed savings scheme that is guaranteed to provide a high return on investment for senior citizens (above the age of 60 years). This account can be opened singly by an individual or jointly with spouse only. The account can be closed on maturity of 5 years but can be closed prematurely any time. However, a penalty of 1.50% of amount invested is levied if the account is prematurely closed within 2 years of investment and if the account is closed after 2 years but before the maturity period of 5 years then 1% of the invested amount is deducted as penalty. The objective of this scheme is to provide senior citizens with regular income post retirement. This scheme is a safe and secure investment and provides high interest rate as compared to fixed deposits. The process of investing in SCSS is straightforward and can be done at any authorized bank or post office in India. Additionally, interest earned through SCSS is paid to the account holder on a quarterly basis, with payments occurring on the first day of April, July, October, and January each financial year.
4. KISAN VIKAS PATRA (KVP)
The Kisan Vikas Patra (KVP) is a post office savings scheme that allows individuals to invest a minimum of Rs. 1,000, with no maximum limit, and in multiples of 100. The investment doubles every 10 years, and currently the scheme offers an annual interest rate of 7.2% (for Q4 FY 2022-23). The certificate is transferable and can be endorsed to a third person and can be prematurely closed after 2.5 years of investment. However, it is important to note that the interest earned in this scheme is taxable. This scheme is well suited for individuals living in remote areas who may not have access to other financial products and are looking for a simple investment option with a reasonable return.
5. NATIONAL SAVINGS CERTIFICATE (NSC)
The National Savings Certificate (NSC) is a long-term savings scheme with a maturity period of 5 years. There is no maximum limit on investment, however the minimum investment amount is Rs. 1,000. The NSC certificate can be purchased singly by individuals in their own name; or jointly up to three adults; or by a guardian on behalf of a minor or on behalf of a person of unsound mind; or by a minor above 10 years of age in his own name.
Investors are eligible to deduction under Section 80C of the Income Tax Act. Additionally, the interest earned on NSC is deemed to be reinvested under the same section and is also tax-deductible, with the exception of interest earned in the final year of the NSC.
NSC certificates can also be pledged as security for availing bank loans and are transferable, with the option of a single transfer allowed during the investment tenure.
Overall, NSC is a safe and tax-efficient saving scheme for long-term and risk-averse investors.
6. SUKANYA SAMRIDDHI YOJANA (SSY)
The Sukanya Samriddhi Yojana (SSY) is a savings scheme designed for the benefit of the girl child. The Sukanya Samriddhi account can be opened in the name of a girl child by her parents or legal guardians. The girl's age should be below 10 years at the time of opening the account. Only one account per girl child can be opened and a maximum of two accounts can be opened for two different girls in the family. However, if the girls are twins or triplets, then more than two accounts can be opened. The account must be closed after 21 years of opening or upon marriage of the girl child after reaching the age of 18 or if there is a change in her residential status (i.e., if she becomes a non-resident or non-citizen). Partial withdrawal of up to 50% of the deposited amount till the previous financial year is allowed after the girl reaches 18 years of age or after she has passed 10th standard, whichever is earlier for higher education. The withdrawal shall be restricted to actual requirement on account of fees and necessary documents have to be submitted in this regard.
Maturity proceeds consisting of the interest earned and the amount invested are paid to the girl and are completely tax-free. The parents/ guardians can however claim deduction under section 80C for the amount invested in the name of the girl till maturity.
Safety: Post office schemes are considered to be very safe investments, as they are backed by the government. These schemes are suitable for risk-averse investors seeking capital protection.
Guaranteed returns: Many post office schemes offer guaranteed returns as they have Government backing.
Tax benefits: Post office schemes such as the PPF, SCSS, NSC, SSY mentioned above offer tax benefits to investors.
Easy accessibility: Post offices are located in most towns and cities, making it easy for individuals to open accounts and invest in schemes.
Small investments: Post office schemes have a low minimum investment requirement starting as low as Rs 250/- up to Rs 1,000/-.
Nomination Facility: Most of the post office schemes offer nomination facility which provides the nominee legal right over the investment, in case of death of the investor.
Long term investment: Post office schemes generally have a maturity period of 5 years and above. This helps them serve as long term investments encourages investors to instill long-term investing discipline in themselves.
SUMMARY OF POST OFFICE SAVINGS SCHEMES
*Interest rates are subject to change on quarterly basis by the Government. The above interest rates are applicable for Q4 FY 2022-23.
Conclusion
Post office schemes can be a great investment option for individuals looking for safe and secure investments with guaranteed returns. These schemes offer a wide range of options that cater to different investment needs, with many of them providing tax benefits and small investment options. Additionally, easy accessibility and low-risk nature makes these schemes accessible for people from different financial backgrounds. It is crucial to do proper research and understand the terms, maturity, consequences of premature closure and tax implications before making an investment in any of these schemes depending on the investor’s needs and goals. Overall post office savings schemes can be considered as good addition to one's portfolio.
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