S. Varadharajan
Retail investors have lots of avenues for investing their savings. But they have to choose right options, depending on their needs. They should keep in mind factors such as age, disposable income, their liabilities and assets and size of the family before selecting the schemes. Among the options available they select instruments offering safety, liquidity, returns, and, most importantly, tax benefits. Savings schemes have advantages and limitations. There are ‘active’ investors who have awareness about the schemes and time to go through the details. Many others do not find time due to their pre-occupation with their jobs and lack of knowledge about the schemes. These investors should consult reliable investment consultants. Always diversified portfolio of savings schemes would help in securing decent return and safety on investments.
Most of the investors prefer post office savings schemes, which are popular. As a retirement option, they also look for long-term public provident fund offered by post offices and public sector banks. The government had effected changes in public provident funds (PPF) to make it particularly attractive. A tax payer can invest up to Rs. one lakh and claim tax benefits under Sec. 80 C of the Income-tax Act. The return on PPFs is 8.6 per cent. Post offices also offer recurring deposit, time deposit and national savings certificates.
Small savings schemes have facilities for nomination and in case of death of depositor, his / her nominee (s) can easily withdraw the deposits with interest. The schemes can be transferred from one post office to another.
There is a scheme called pay roll savings scheme under which employers can deduct the amount from the salaries and remit it to the savings schemes opted by the employees. Besides post offices, State Bank of India and select branches of nationalised banks offer public sector provident funds. Deposits are payable on maturity after 15 years along with interest rates compounded annually. Loans also can be availed from the third financial year. The minimum deposit is fixed at Rs. 500 in a financial year. The maximum number of deposits is 12 in a financial year. Premature withdrawal is permissible every year after completion of 5 years from the end of the year of opening the account. The accounts can be transferred from one post office to another, from a bank to another and from a bank to post office and vice-versa. Income Tax rebate is available on the deposits made under Section 88 of Income tax Act, as amended from time to time, and the interest credited every year is tax-free.
The post office monthly income scheme offers an interest rate of 8.5 per cent payable monthly with effect from April 1, 2012. The maturity period is 5 years. But no bonus is available on maturity with effect from December 1, 2011. There is tax deduction at source, and no tax rebate is applicable.
The minimum investment amount is Rs.1,500 or in multiple thereafter. The maximum amount is Rs. 4.50 lakh in a single account and Rs.9 lakh in a joint account. The scheme is suitable for retired employees/ senior citizens and for those who need regular monthly income.
Senior citizens scheme
Post offices offer 9.3 per cent per annum on senior citizens savings scheme from the date of deposit on quarterly basis with effect from April 1, 2012.
The minimum deposit is Rs. 1,000 and multiples thereof, and the maximum limit of Rs.15 lakh. The maturity period is five years and can be extended for a further period of three years.
The senior citizens should be 60 years or more, while 55 years or more but less than 60 years is applicable for those who have retired under a voluntary retirement scheme or a special voluntary retirement scheme on the date of opening of the account within three months from the date of retirement.
The tax is deducted at source on interest if the interest amount is more than Rs. 10,000 annually.
National savings certificates
Under the national savings certificates (NSC) scheme, the NSC VIII Issue (five years) carries 8.6 per cent interest with effect from April 1, 2012 while on NSC IX (10 years), the interest rate is 8.9 per cent.
There is no tax deduction at source, and investment up to Rs one lakh per annum qualifies for income tax rebate under section 80C of IT Act.
The postal time deposits and the monthly income scheme (MIS) have a lot in common with the fixed deposits of banks. There are a number of schemes under the small savings category to suit the various needs of investors.
As banks were given freedom to fix their own rates, the Government should ensure that the interest rates are aligned to market rates from time to time to encourage small savings as these play a significant role in public finance of the Union Government.
Source:-The Hindu
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