Government-run savings schemes are some of the safest investment options in India. These instruments come with little to no risk and earn steady returns. From the time they were introduced, traditional investment instruments have been the go-to option for most Indian investors due to the low-risk and guaranteed returns that they offer.
The following is a comparison of 2 of the popular government-run savings schemes:
Public Provident Fund (PPF)
The PPF is perhaps one of the most popular of all the government-run savings schemes. The scheme was introduced in 1968 by the Ministry of Finance and continues to be one of the most trusted investment instruments across investors of all demographics. The following are some of the features and benefits of the scheme:
Features and benefits
The PPF comes with an investment tenure of 15 years and the contributions made towards the scheme can be withdrawn on maturity. Additionally, investors can choose to extend their investment in the scheme in 5-year blocks following maturity.
In order to open a PPF account, subscribers are required to make an initial investment of Rs.500. Following the initial contribution, subscribers can continue to invest in the scheme with a minimum amount of Rs.500 each year and a maximum amount of Rs.1.5 lakh. While the investor is permitted to invest more than Rs.1.5 lakh in a given year, any amount beyond the stipulated limit is not eligible to earn interest. A PPF subscriber is required to make a minimum contribution of Rs.500 every year in order to keep their account active.
As stated earlier, the contributions made to a PPF account are eligible to earn interest. At present, the rate of interest for contributions made towards a PPF account is set at 8% p.a. The interest earned on PPF contributions is compounded annually and is paid out at the end of every financial year. Furthermore, PPF accounts that have reached maturity continue to earn interest even if no contributions have been made following completion of the 15-year tenure.
Ideally, the funds accumulated in a PPF account should be withdrawn on maturity. However, investors are permitted to make premature withdrawals from their PPF account after completion of 5 years of contribution. Furthermore, investors are only permitted to withdraw funds from their PPF account under specific circumstances such as medical emergencies or funding one’s higher education.
When making a premature withdrawal from one’s PPF account, subscribers are permitted to withdraw up to 50% of the funds in their account. Additionally, when subscribers have extended the tenure of their investment in the PPF and wish to make a withdrawal, they can only withdraw up to 60% of the funds in their account.
An advantage of investments made towards a PPF account is that subscribers are provided with the facility of availing loans against their account. Subscribers are permitted to avail this loan facility between the third and sixth year of their account tenure. Investors are permitted to avail up to 25% of the corpus in their account as a loan.
The PPF comes with a nomination facility and subscribers can name individuals who will receive the funds in their PPF account in the event of their death.
The contributions made towards the PPF are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. Subscribers are eligible to claim a maximum of Rs.1.5 lakh as tax deductions in a financial year. Additionally, the interest earned on the funds in a PPF account is completely free from taxation.
How to apply
One can open a PPF account at any branch of the Indian Post Office and at certain designated banks. A PPF account can be opened online or through submission of a physical form. The contributions made to the account at the time of opening can be made online or through cash and cheque. For more information about how to check PPF Account Balance click here.
Sukanya Samriddhi Yojana Scheme
The Sukanya Samriddhi Yojana (SSY) Scheme was launched in January 2015 by Prime Minister Narendra Modi as part of the Beti Bachao, Beti Padhao campaign. The primary goal of the scheme is to encourage parents to build a savings fund for their daughters future. The following are some of the features and benefits of the scheme:
Features and benefits
The tenure of the SSY account varies based on the age of the subscriber at the time of opening the account. The scheme matures when the account holder reaches the age of 21 years. The account should be opened before the applicant reaches the age of 10 years.
The funds in the account can be withdrawn when the account holder reaches the age of 21 years. If the account holder does not wish to make a withdrawal after their account matures, the funds continue to earn interest.
As per the rules of the scheme, an SSY account can be opened with an initial minimum deposit of Rs.250. In order to keep the account active, a minimum contribution of Rs.1,000 has to be made every financial year. The contributions have to be made in multiples of Rs.100. The maximum amount that can be contributed towards the scheme is capped at Rs.1.5 lakh p.a.
Contributions made towards the SSY are eligible to earn interest. At present, the rate of interest on an SSY account is set at 8.5% p.a. The interest earned is compounded annually and is paid out at the end of every financial year.
The funds accumulated in the account can be withdrawn on maturity. However, withdrawal is permitted under certain circumstances such as the death of the account holder or funding of medical treatments. Partial withdrawal is permitted when funds are required to fund the marriage expenses of the account holder or their higher education.
A maximum of 50% of the funds in the account can be withdrawn in the event of a partial withdrawal and this is only permitted when the account holder reaches the age of 18 years.
The contributions made towards the SSY are free from taxation up to the maximum amount of Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961. Furthermore, the amount earned as interest on the deposits made is completely free from taxation.
How to apply
The SSY account can be opened at any of the authorized banks and at all branches of the Indian Post Office. Only one account can be opened and operated per individual. Additionally, no more than 2 accounts can be opened by each family. Deposits towards the account can be made online or via cash, cheque, and demand draft.
The SSY and PPF are just two of the many small savings schemes run by the Indian government. Both schemes are extremely helpful in building a substantial amount in savings and the tax benefits associated with both schemes further add to their appeal among investors.