Most of us know that saving money for the future is a critical step to achieve goals, build assets, and retire comfortably. But things can go rather uncertain when you start thinking about how much to save and where to save your money.
How much to save? Although there is no definite answer, most financial experts advise you to save 10% of your income. Where to save? There are many savings plans available in the market where you can invest your money. However, you can easily get confused about choosing the best savings plan for you with so many options out there.
Thankfully, this simple guide will help you feel more confident about how and where to save your money. Here, we have categorised various savings plans into 4 categories – namely, Bank Savings Plans, Market-Linked Savings plans, Government Savings, and other savings options. Also, we have compared them on the basis of various parameters.
Best Saving Plans & Schemes in India
Bank Savings Plan
|Bank Savings Plan||Returns Offered||Tax Benefits||Tax Payable||Investment Limit||Lock-In Period|
|Fixed deposit (FD)||5.5% to 7.5%||Tax deductions of up to ₹1.5 Lakh||Returns are taxable||Varies from bank to bank||5 years|
|Recurring Deposit (RD)||5% to 8%||Maximum of ₹ 1.5 Lakh can be claimed as deductions in a financial year||10% TDS deducted if interest earned is more than ₹ 10,000||Min: ₹ 500 Max: ₹ 1,00,000 per month||6 month – 10 years|
|Tax-Saving Bank FDs||6.5% to 7.25%||Maximum of ₹ 1.5 lakh can be claimed as deductions in a financial year||Interest earned is taxable||Min: ₹ 100 Max: No limit||5 years|
|Market-Linked Savings||Returns Offered||Tax Benefits||Tax Payable||Minimum Investment Period||Lock-In Period|
|Direct Equity / Stocks||12% – 15% (Historical returns)||No tax deduction||Returns are taxable||No minimum or maximum amount||N/A|
|Mutual Funds||6.5% –7.5% (Historical returns)||Yes. Under section 80 C||Returns are taxable||As low as ₹5,000 (lump sum) and ₹ 500 for a monthly SIP||N/A|
|Equity Linked Savings Scheme (ELSS)||Market linked (12-15% historical returns)||Tax deductions up to ₹ 1.5 Lakh under Section 80C.||Capital gains beyond ₹ 1 Lakh ₹are taxable at 10%||Min: 500 or depends on the fund houses Max: No limit||3 Years|
|Unit Linked Insurance Plan (ULIP)||Keeps fluctuating depending on ULIP Fund Performance||Eligible for deduction under section 80C of up to ₹ 1.5 Lakh||No tax on returns||Min: Depends on the insurance company Max: no limit||3 to 5 Years|
Government Savings Schemes/Plans
|Government Savings Schemes/Plans||Returns Offered||Tax Benefits||Tax payable||Investment Limit||Lock-in Period|
|Public Provident Fund (PPF)||7.1%||Tax deduction under Section 80C of the Income Tax Act||Interest earned and maturity amount are tax-free||Min: ₹ 500
Max: ₹ 1.5 Lakh each financial year
|National Saving Certificate (NSC)||6.8%||Up to ₹ 1.5 Lakh tax exemption under the Section 80C||Interest tax-free for the first 4 years||Min: ₹ 100
Max: No upper limit
|5 to 10 years|
|Post Office Savings Account||4%||Income tax benefit under the provisions of section 80L of the Income Tax Act||Interest earned is tax-free for up to ₹ 10,000 per year||Min: ₹ 500<br”>Max: No limit||NA|
|Post Office Time Deposit||6.9% to 7.7% depending on the tenure chosen of 1, 2, 3, or 5 years||Only deposits made for the 5-year tenure are eligible for tax benefits under Section 80C of the Income Tax Act.||Interest earned is added to the total amount, which can fall under the taxable bracket||Min: ₹ 200<br”>Max: No limit||NA|
|Post Office Recurring Deposit||7.2%||Tax exemptions as per Section 80C up to ₹ 1.5 Lakh||Interest earned is liable for taxation.||Min: ₹ 10 each month
Max: No limit
|Post Office Monthly Income Scheme ( POMIS)||7.2%||No tax benefits under Section 80C.||Interest amount doesn’t incur any Tax Deducted at Source (TDS);||Limit of ₹ 4.5 Lakh per account and ₹ 9 Lakh for a shared account||5 Years|
|Kisan Vikas Patra||6.9%||Not eligible for tax rebate under Section 80C||Returns are taxable||Min: ₹ 1000
Max: No limit
|Sukanya Samriddhi Yojana||7.6%||EEE product. Investment+Interest+Maturity is tax exempted||The interest earned as well as maturity proceeds are tax-free||Min: ₹250 per year
Max: ₹ 1.5 Lakh per year
|Senior Citizens Saving Scheme (SCSS)||7.4%||Tax deduction of up to ₹ 1.5 Lakh||Interest earned is taxable||Min: ₹ 1000
Max: ₹ 15 Lakh
|National Pension Scheme (NPS)||6.92% – 14.29%||EEE product. Tax exemption of up to ₹ 1.5 Lakh + additional ₹ 50,000 u/s 80CCD (1B)||Interest earned on the invested amount is not taxable||Min: ₹ 250 onwards||Till Retirement (age 60)|
|Pradhan Mantri Vaya Vandana Yojana (PMVVY)||7.40%||No tax benefits||The pension received is added to your annual income and taxed based on your income tax slab||Min: ₹ 156, 658
Max: ₹ 15 Lakh payable monthly, quarterly, half-yearly, or yearly
|Pradhan Mantri Jan Dhan Yojana||4%||NA||NA||Min: No limit
Max: No cap
|Atal Pension Yojana (APY)||Returns depend on contributions||Eligible for tax deduction under Section 80CCD(1)||The pension you receives during retirement is considered as salary income and is taxable as per the tax slab at that time||Minimum investment differs based on the pension plans and the age of the investor||Age 60 years|
Other Saving Options
|Other Saving Options||Interest Rate||Tax Benefits||Tax Payable||Investment Limit||Lock-In Period|
|Chit Funds||Depends on the bid amount||–||No TDS on the dividends earned during chit tenure||Differs as per different chit fund companies||Not Applicable|
|Gold||Market-Linked||–||Treated as Debt Funds and taxed accordingly||–||Not Applicable|
|Real Estate||10% to 15%||–||20% Tax Deduction on taxable income||–||Not Applicable|
Bank Savings Plan
- Fixed deposit (FD) Considered as one of the safest investment instruments, Fixed Deposit (FD) offers the highest stability. Returns are assured as there is no risk of loss of the principal amount. You can consider choosing periodic interest payouts to help manage monthly expenses.
- Recurring Deposit (RD) Recurring Deposit works like an FD but with high flexibility. In RD, you can choose to invest instalments instead of depositing a lump sum.
- Tax-Saving Bank FDs Tax-saving bank FD is a prominent investment option, and as its name suggests, it offers good tax benefits. The minimum tenure is 5 years. You are eligible for a tax exemption of a maximum of ₹ 1.5 Lakh.
- Direct Equity/Stocks Direct Equity investment is a high-risk investment option. It purchases company shares, and the company’s performance has a direct impact on the price of the shares. Any fluctuation in the share price can increase or decrease the stock value.
- Mutual funds A mutual fund offers low risk and high flexibility. It is an investment vehicle that allows you to invest in a variety of asset classes such as debt funds, equity funds, etc.
- Unit Linked Insurance Plan (ULIP) Unit Linked Insurance Plan (ULIP) is a combination of investment and insurance. It offers money growth as well as life cover. A portion of your investment is put into life insurance and the rest of it is invested into debt or equity or both depending on your long-term financial goals.
- Equity Linked Savings Scheme (ELSS) Equity Linked Savings Scheme predominantly invests in equity and equity-related instruments. This scheme generates high returns, and investment up to ₹1.5 Lakh is eligible for deduction from taxable income in a financial year.
Government Savings Schemes/Plans
- Public Provident Fund (PPF) Public Provident Fund (PPF) is a tax-free saving scheme with a lock-in period of 15 years. The Indian government regulates it, and the interest rate is set and paid by the government for every quarter. You can invest with a minimum amount of ₹ 500 p.a.
- National Saving Certificate (NSC) National Savings Certificate (NSC) can be purchased from any post office by a resident of India. This government-backed tax saving investment scheme is low risk and fixed return.
- Post Office Savings Account Post Office Savings Account is similar to a regular bank savings account. It is a low-risk investment instrument and can be partially or fully liquidated as and when the need arises.
- Post Office Time Deposit These schemes have tenures of 1, 2, 3, or 5 years. Only one deposit can be made in one account. It promises assured returns and can be easily transferred from one post office to another. It can be operated solely or held jointly.
- Post Office Recurring Deposit A post office RD is a popular savings alternative to fixed deposits and other long-term schemes that are offered by post offices.
- Post Office Monthly Income Scheme (POMIS) The Post Offices in India regulate this monthly scheme. It is backed by the government and allows you to invest a certain amount every month. With a minimum investment of ₹ 1500, an Indian resident is eligible to open POMIS.
- Kisan Vikas Patra Launched by India post in 1988, Kisan Vikas Patra is a saving scheme that was launched by India Post in 1988. A successful product in its initial days, but had to be closed in 2011 because of the scams reported. Later in 2014, when Narendra Modi led NDA government came into power, the scheme was re-launched. This fixed-rate scheme allows you to double your investment in a specific period. Right now, the period is 124 months.
- Sukanya Samriddhi Yojana Under Beti Bachao Beti Padhao program of Prime Minister Narendra Modi, the Sukanya Samriddhi Yojana was launched to ensure a bright future of India’s girl child. This scheme helps girls to get proper education and have a carefree marriage.
- Senior Citizens’ Saving Scheme (SCSS) Senior Citizen Saving Scheme is a Government of India scheme. The interest rate is at 7.4% and is revised by the Ministry of Finance from time to time. This government-backed product is one of the safest investment options.
- National Pension Scheme (NPS) The National Pension System (NPS) is a pension system for all Indian citizens. The contributions made by the subscribers are invested in various investment instruments such as debts and equities. The final pension amount depends on how these investments perform.
- Pradhan Mantri Vaya Vandana Yojana (PMVVY) Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a guaranteed pension plan for Senior Citizens. After a single investment, this scheme provides an assured pension for the next ten years. Pradhanmantri Vaya Vandana Yojana offers good returns depending on how you opt to take your payouts – monthly, quarterly, half-yearly, or yearly.
- Pradhan Mantri Jan Dhan Yojana Prime Minister Narendra Modi first announced Pradhan Mantri Jan Dhan Yojana in his Independence Day speech on 15th August 2014. With an objective of financial inclusion for all, PMJDY provides basic banking accounts with a debit card and inbuilt accident insurance. The key feature is the ₹ 5,000 overdraft facility for Aadhar-linked accounts. Additionally, it offers a RuPay debit card with inbuilt ₹ 1 Lakh accident insurance cover.
- Atal Pension Yojana (APY) Atal Pension Yojana (APY) is a government-backed scheme, and all Indian citizens are eligible for it. APY is administered by the Pension Fund Regulatory and Development Authority (PFRDA) under the National Pension System (NPS) with a focus on the unorganized sector.
Other Savings Schemes
- Chit fund A chit fund is a type of rotating savings and agreement between different individuals. Friends, neighbours, relatives, and family members can subscribe to invest a certain amount of money for a certain period of time. Chit funds are also known as chit, Chitty, or Kuree and are often microfinance organizations.
- Gold Gold ETFs or Gold Exchange Traded Funds are a mix of gold investments and stock. The funds are traded on the National Stock Exchange (NSE). These can be bought and sold just like any other company stock. These passive instruments are transparent in pricing as their value depends on the price of the gold. They are vulnerable to market volatility but can offer higher ROI.
- Real Estate The real estate sector holds huge prospects in India. Real estate investments are known to provide high returns. As properties appreciate over time, the risk involved in real estate investment is low.
Top 7 Savings Schemes for Lower or Middle Income Group
- Atal Pension Yojana
- Pradhan Mantri Jeevan Jyoti Beema Yojana
- Sukanya Samriddhi Yojana
- Pradhan Mantri Suraksha Bima Yojana
- Pradhan Mantri Jan Dhan Yojana
- Kisan Vikas Patra
- Chit Fund (registered)
Why Is it Important to Invest in Saving Schemes?
Saving schemes are important for people and the country’s economy because of the following reasons:
- Safety – helps you save money for the future.
- Retirement Funds – helps you build a retirement corpus.
- Long-Term Benefits – the compound interest concept of these savings schemes helps your long-term investment fetch great ROI.
- Tax Savings – some saving plans help you to qualify for a tax deduction on investment of up to Rs.1.5 lakh under Section 80C of the Income Tax Act or offer tax exemptions.
- Avoid Unwanted Expenses – helps avoid unnecessary expenditure on unnecessary goods and services.
What are savings schemes/plans?
Savings schemes are instruments that help people save money to accumulate wealth, create a financial cushion, and meet their short-term and long-term financial goals. These schemes are introduced by the government of India, banks and private/public sector banks, and financial institutions.
How to create a savings plan?
Follow these steps to create a savings plan:
- Set up your budget
- Identify your savings goals
- Figure out how much you can contribute towards your savings goal each month
- Depending on your goals and how much you can contribute, open up a savings scheme
- Keep investing and gradually increase your savings as your income increases
How to choose the best savings plan for me?
The following steps will help you decide the best savings plan for you:
- Decide your purpose for saving. Is it for retirement, education, or for building a home? Your purpose has a big role in helping you choose the right savings plan.
- Determine how many years you have to achieve your goal. There are saving plans with different investment horizons. Choose the one that’s closest to your goal.
- Check the lock-in period. Most savings plans have lock-in periods. When choosing a savings plan, consider the plan’s lock-in period; you don’t want to lock your money if you need it for achieving a short-term goal.
- Check the growth rate or interest rate. Choose a savings plan that has a growth potential that’s matching with your goals
- Find out the costs associated with the savings plan. The costs attached to investing in a savings plan can affect the returns. So, choose a plan with fewer expenses.
- Consider setting up auto-debit. Your savings plan will work only when you contribute to it regularly. To make sure you do it religiously, choose a savings plan that allows you the auto-debit option.
Are savings schemes tax-free?
Not all, but only some savings schemes offer tax exemption benefits. The savings schemes which offer tax benefits are: