Any plan that encourages savings for future needs comes under the category of savings scheme. The government in India offers a range of small savings schemes, which offer lucrative interests and tax exemptions. These schemes not just secure the well-being of the depositors, but also help in financing government expenditure.
The government has introduced diverse schemes to inculcate the habit of steady savings with dependable returns among small- scale investors.
The interest rates for small saving schemes are announced by the Finance Ministry on a quarterly basis.
Moneycontrol explains the wide range of saving schemes, where these are parked and how it helps the government.
What is the National Small Savings Fund (NSSF)?
The National Small Savings Fund (NSSF) is a fund body, which pools money from various small saving schemes.
When was NSSF established and who administers it?
NSSF was established in 1999 within the Public Account of India. It is administered by the Ministry of Finance, Government of India, under the National Small Savings Fund (Custody and Investment) Rules, 2001, derived from Article 283(1) of the Constitution.
What is the purpose of NSSF?
National Small Savings Fund combines the collections obtained from different small saving schemes. The pool from all such schemes are credited to the NSSF and withdrawals under small saving schemes by depositors are made from this Fund.
Further, the money parked in the NSSF is used by the Centre and states to finance their fiscal deficit, while the balance is invested in central and state government securities.
It, therefore, helps the government to channelize the money towards itself for fulfilling its financing requirements.
As per the recommendations of the Fourteenth Finance Commission, all states in India use the NSSF fund for their financing needs except Kerala, Delhi, Arunachal Pradesh, and Madhya Pradesh as these states get loans at lower rates of interest.
As per the NSSF, its gross and net collections stood at Rs. 4.01 lakh crore and 1.01 lakh crore respectively in 2018-19.
What are small saving schemes?
Small saving schemes are backed by the government and inculcate the saving habit among individuals to build a substantial corpus for retirement or exigencies that may arise in future.
These schemes, which are launched by the government, banks, and public sector financial institutions, offer attractive rates of interest and tax exemptions on investment.
The amount parked in the saving schemes could be used to pay for a mortgage, child’s education, marriage or even a medical emergency.
Small Saving Schemes can be grouped under three heads:
(a) Post office Deposits: Post Office Savings Account, Post Office Time Deposits (1,2,3 and 5 years), Post Office Recurring Deposits and Post Office Monthly Account
(b) Savings Certificates: National Savings Certificate and Kisan Vikas Patra
(c) Social Security Schemes: Public Provident Fund, Senior Citizens Savings Scheme and Sukanya Samriddhi Account
What are the popular small saving schemes in India?
Post Office Savings Account: It is like a savings account with a bank, except that it is held in a post office. A Post Office Savings Account is highly liquid and can be withdrawn any time. The minimum balance for non-cheque accounts is Rs 50 with no upper limit. It attracts an interest rate of 4 percent per annum.
Post Office Recurring Deposits: It lets people with regular savings to deposit a fixed amount every month for a tenure of five years and earn returns at fixed deposit rates. The minimum account required to be paid every month is Rs 100. It offers an interest rate at 5.8 percent and is compounded annually.
National Savings Certificate: It is a fixed investment scheme backed by the government to incentivize individuals with lower incomes to make investments. The duration of the scheme is five years and individuals can put money in the scheme at post offices. The minimum amount required to invest is Rs 100 with no cap on the maximum amount. This certificate offers an interest rate of 6.8 percent, which is compounded annually.
Kisan Vikas Patra: It is a small savings instrument that was introduced by India Post in 1988 to facilitate people to invest in a long-term savings plan. The interest rate applicable to Kisan Vikas Account is 6.9 percent, compounded annually. The minimum amount required for investment is Rs 1,000 and in multiples of 100 thereafter. The scheme was launched to instil financial discipline among small investors, especially farmers.
Public Provident Fund: This is one of the most popular retirement benefit schemes aimed at encouraging savings habits for the future. It requires a minimum deposit of Rs 500, not exceeding Rs.1.5 lakh in a year. It has an interest rate of 7.10 percent. This fund is a long tenure investment scheme of 15 years, which can be extended further in batches of five years.
Senior Citizens Savings Scheme: The Senior Citizens Saving Scheme or SCSS is a government-backed investment scheme for senior citizens above the age of 60. Individuals who are aged between 55 years and 60 years and have opted for Voluntary Retirement Scheme, can also avail its benefits. Under this scheme, the minimum investment amount is Rs 1,000 and the multiples, thereafter, should not exceed Rs 15 lakh. It attracts a 7.4 percent per annum rate of interest.Sukanya Samriddhi Account:
This scheme was launched to encourage savings by parents and guardians to meet a girl child’s education and marriage expenses. It is applicable for 21 years after the opening of the account or until the girl gets married after turning 18. The scheme was introduced for a girl child aged 10 years or below. Under the scheme, parents or legal guardians need to make a minimum investment of Rs 1,000 and can invest up to Rs 1.50 lakh every year. It offers an interest rate of 7.60 percent.