Are you interested in finding secure and trustworthy ways to make your money grow with the help of government-backed saving plans? Well, you’re in luck! In this blog post, we’re excited to share our carefully chosen list of the top 10 government-backed saving schemes. These options are tailored to suit various financial needs and goals, ensuring that there’s something for everyone.
The Context
The Indian government offers saving schemes to encourage savings, promote financial inclusion, address social welfare needs, mobilize savings for investments, provide safe investment options, and stimulate economic growth.
These schemes aim to inculcate a culture of savings, provide accessible and affordable savings options, finance developmental projects, and contribute to the economic growth and welfare of citizens. These schemes serve as the foundation for a well-rounded investment portfolio, despite their conservative returns due to the lower risks involved. Discover our top 10 handpicked government saving schemes that merit exploration, tailored to your unique requirements.
1. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a popular long-term saving scheme in India that offers attractive tax benefits and stable returns. It is a government-backed saving scheme t and provides a fixed interest rate, making it a safe investment option.
The PPF encourages individuals to save for the long term, with a minimum investment period of 15 years and allows for partial withdrawals after a certain period. It is widely used for retirement planning and offers tax deductions on both the investment amount and the interest earned.
The current PPF interest rate is 7.1% p.a. which is compounded annually. The Finance Ministry sets the interest rate every year, which is paid on 31st March. The interest rate for PPF is revised every quarter based on the prevailing interest rates on government bonds.
Looking to forecast your potential earnings from a PPF investment? Give the PPF calculator a try! It takes into account your investment amount and tenure to provide you with an estimate. And if you’re eager to dive deeper into the world of PPF, check out our comprehensive article by clicking here.
2. Government Securities (G-Secs)
G-Secs, or Government Securities, are debt instruments issued by the government of India to borrow money from the public. They offer a fixed rate of interest and are virtually risk-free.
G-Secs have maturities ranging from 91 days to 40 years.
Returns on G-Secs depend on prevailing interest rates and demand-supply dynamics. The interest rate for G-Secs is revised quarterly based on prevailing government bond rates. The current interest rate for Q4 FY 2022-23 is 7.1% p.a. G-Sec prices and yields have an inverse relationship. When G-Sec prices go up, yields go down, and vice versa.
For example, if a G-Sec with a face value of Rs 100 and a coupon rate of 5% rises to Rs 105, its yield falls to 4.76%.
3. Sovereign Gold Bonds (SGB)
Sovereign Gold Bonds (SGBs) are government securities that are denominated in grams of gold and issued by the Reserve Bank of India on behalf of the Government of India. They offer a fixed interest rate of 2.5% per annum on the nominal value of the bond, which is paid semi-annually.
The interest earned on SGBs is taxable based on the investor’s income tax slab.
The returns on SGBs depend on the market price of gold and the interest earned on the bonds. The redemption price of SGBs is calculated based on the average closing price of gold of 999 purity over the previous 3 working days, as published by the Indian Bullion and Jewellers Association Limited.
If SGBs are redeemed at maturity, which is 8 years from the date of issue, the capital gains are exempt from tax. However, if they are sold in the secondary market before maturity, the capital gains are taxable as per the applicable tax rules. Investors can calculate the returns on SGBs using a Sovereign Gold Bond Calculator, which takes into account the purchase price of gold, the number of units, the expected returns, and the tenure.
For example, if an investor bought 10 units of SGB at Rs 4,500 per gram in November 2015 and sold them at Rs 5,600 per gram in November 2021, they would have earned an interest income of Rs 11,250 and a capital gain of Rs 11,000. The annualized return can be calculated using the XIRR function in Excel, which would be around 13.5% before taxes and 12.8% for those in the 30% tax bracket.
4. National Savings Certificate (NSC)
The National Savings Certificate (NSC) is a fixed-deposit investment scheme offered by the Indian government, with a fixed tenure of 5 or 10 years and a predetermined interest rate, making it a low-risk investment option. The interest earned on NSC is compounded annually and qualifies for tax deduction under Section 80C of the Income Tax Act. NSC is popular among risk-averse investors seeking a secure savings option with moderate returns.
The returns on NSC depend on the interest rate and the amount invested, and the interest earned is taxable as per the investor’s income tax slab. However, investments up to Rs.1.5 lakh are eligible for deduction under Section 80C of the Income Tax Act, 1961. Currently, the NSC offers a return of 6.8% per annum for a minimum investment of Rs.1,000, with a lock-in period of 5 years.
5. National Pension Scheme
The National Pension Scheme (NPS) is a voluntary pension scheme designed to offer retirement income to Indian citizens through a market-linked investment option that provides flexibility in choosing the investment portfolio based on risk tolerance.
Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), NPS offers tax benefits on investment amounts, returns, and maturity proceeds, making it a long-term investment option suitable for retirement planning.
To open an NPS account, you can choose between online or offline options with any of the registered points of presence (POP). There are two types of accounts: Tier I and Tier II. Tier I account is mandatory and has a longer lock-in period until retirement, while Tier II account is optional and offers more flexibility in terms of withdrawal and investment choices.
To gain entry to an in-depth write-up regarding the National Pension scheme, feel free to click on this link. The returns on NPS depend on the performance of the schemes and asset classes you invest in. NPS offers two choices for investors: active choice and auto choice. Active choice allows you to determine your asset allocation among equity, corporate bonds, government bonds, and alternative assets.
On the other hand, auto choice automatically allocates your assets based on your age and risk profile. The returns on NPS are not guaranteed and vary from scheme to scheme and fund manager to fund manager.
6. Kisan Vikas Patra (KVP)
Kisan Vikas Patra (KVP) is a small savings scheme offered by the Indian government that aims to encourage savings among rural investors. It is a fixed deposit scheme with a lock-in period of 2.5 years and offers a fixed interest rate. KVP is backed by the government and is considered a low-risk investment option.
The effective interest rate for Kisan Vikas Patra varies depending on the number of years invested in KVP at the time of purchase.
The current interest rate is 6.9% p.a. for the KVP scheme. The returns offered by the scheme are completely taxable, but after completion of the maturity period, the TDS (Tax deducted at source) is exempted from the withdrawal amount.
7. Employee Provident Fund (EPF)
The Employee Provident Fund (EPF) is a retirement benefits scheme that is mandatory for salaried employees in India, with contributions made by both the employee and employer towards the EPF account. Managed by the Employees’ Provident Fund Organization (EPFO), EPF offers a fixed interest rate and serves as a long-term investment option for employees to build their retirement corpus.
The EPF interest rate is reviewed yearly by the EPFO Central Board of Trustees in consultation with the Ministry of Finance. For FY2022-23, the interest rate is fixed at 8.10%. Additionally, the interest rate for FY2023-24 has been set at 8.15%.
8. Sukanya Samriddhi Yojana Account (SSY)
Sukanya Samriddhi Yojana Account (SSY) is a government-supported savings scheme in India that aims to incentivize parents to save for their girl child’s education and marriage expenses. This scheme offers an attractive interest rate and comes with tax benefits to help parents plan for their daughter’s future.
The fixed rate of return on Sukanya Samriddhi Yojana is currently higher at 8% per annum for Q1 FY (2023-24) compared to other government-backed tax-saving schemes like PPF. As a government-backed scheme, SSY provides guaranteed returns, giving parents peace of mind while planning for their daughter’s future.
9. Senior Citizens Savings Scheme (SCSS)
The SCSS, or Senior Citizens Savings Scheme, is a savings plan tailor-made for senior citizens in India, providing an alluring alternative to traditional savings accounts with a higher interest rate. Retirees can benefit from this fixed-term scheme, which lasts for five years and can be prolonged for an additional three years.
To be eligible for this government-supported savings instrument, Indian residents must be 60 years or older. After five years from the account’s opening date, the deposit reaches maturity, but it may be extended for up to three more years.
Currently, as of April-June 2023, the SCSS offers a high interest rate of 8.2% per annum, one of the best interest rates among fixed-income small savings schemes. The interest rate is reassessed every quarter, and fluctuations may occur. Interest is calculated and credited every quarter as well.
10. Post Office Savings Scheme
The Indian postal department offers a range of savings schemes known as the Post Office Savings Scheme. These schemes encompass a variety of options, such as Savings Accounts, Recurring Deposits, Time Deposits, Monthly Income Schemes, and more. All of them are fully supported by the government and provide competitive interest rates.
These schemes present a secure and risk-free way of investing, with the interest rates being fixed and guaranteed by the government.
The schemes currently featured on this counter, which have also been previously covered, are as follows:
≡ National Savings Monthly Income Account
≡ Post Office Monthly Income Scheme Account
≡ Senior Citizen Savings Scheme
≡ Kisan Vikas Patra (KVP)
≡ Public Provident Fund (PPF)
≡ National Savings Certificates (NSC)
11. Bonus: Atal Pension Yojana (APY)
The Atal Pension Yojana (APY) is a government savings scheme designed to benefit unorganized sector workers in India. This scheme guarantees a minimum pension of Rs. 1,000/-, 2,000/-, 3,000/-, 4,000/- or 5,000/- per month at the age of 60, based on the subscriber’s contributions.
To be eligible for this scheme, individuals must be between 18 to 40 years old. Subscribers must have a savings bank account in a post office or bank, which should be linked to their Aadhaar card. To benefit from this scheme, a minimum contribution must be made for 20 years.
By participating in the APY, subscribers can secure their future with a guaranteed minimum pension, allowing them to live a comfortable life after retirement.
Conclusion
The Indian government offers several savings schemes that aim to encourage savings, promote financial inclusion, address social welfare needs, mobilize savings for investments, provide safe investment options, and stimulate economic growth. These schemes offer a well-rounded investment portfolio with conservative returns due to the lower risks involved.
In our opinion, the top 5 government schemes worth exploring are the Public Provident Fund (PPF), Government Securities (G-Secs), Sovereign Gold Bonds (SGB), National Savings Certificate (NSC), and the National Pension Scheme (NPS).
Each of these schemes has unique features and is tailored to meet the diverse requirements of investors.
These government schemes offer a secure and low-risk investment option, making them ideal for individuals looking for safe investment options with moderate returns.
Kindly be aware that the information provided is not intended to serve as investment guidance. It is highly recommended that you conduct thorough research and analysis before making any financial investments, as your hard-earned resources deserve the utmost care and attention.
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