Savings are an integral part of financial management and need to be invested wisely to achieve the desired goals. Different types of savings options, both private and public, are available in India. While some encourage you to save in a disciplined manner, others help you invest them and earn returns to create wealth through compounded returns. Choosing the right savings plan is important to fund your emergency expenses, secure your retired life or meet any other goal like funding your child’s education or marriage. The motive of investment and your risk-bearing capacity are the key factors for choosing a savings plan.
Types of Savings Plans in India
A variety of saving options are available in India with many of them having the backing of the Government of India. Schemes or Plans offered by the private sector are regulated by the Reserve Bank of India and the Securities & Exchange Board of India. Check out the various savings plans and their suitability for you.
- NSC- National Savings Certificate is one of the safest savings plans available through Post Offices in India. This fixed-income investment option is generally preferred by small and mid-income investors for its low-risk and guaranteed returns features. You can buy an NSC for 5 years for any amount but only investments Rs 1.5 lakhs are eligible for tax benefits. Another benefit of this savings option is that you can pledge these certificates for taking bank loans.
- RD or Recurring Deposits- As the name suggests, this savings plan requires you to invest a fixed amount each month. Offered by banks and NBFCs in India, these deposits can be opened for a tenure ranging between 6 months to 10 years. Highly suitable for you if you wish to inculcate a habit of disciplined savings, the savings plan carries a fixed interest rate. A major benefit of this option is that you can borrow about 80 to 90% of the loan value. Some banks also allow premature withdrawal subject to penalty charges.
- PPF or Public Provident Account- This highly popular savings scheme comes with tax benefits and is suitable for building a retirement corpus. Suitable for investors with a low-risk appetite, this savings plan comes with a lock-in period ensuring wealth creation through the compounding of the invested amount. This savings plan offers guaranteed returns besides tax benefits on investment subject to certain limits.
- FD or Fixed Deposits-The safest savings plan in the market, fixed deposits can be made for any amount. They carry a fixed interest and thus are the safest. You can break an FD before the maturity dateif required. The interest on fixed deposits is taxable.
- ELSS or Equity Linked Saving Schemes are tax-saving mutual funds with a compulsory lock-in period of three years. While the investment in these schemes is eligible for tax benefits, the returns on the redemption of these schemes are taxable as capital gains beyond a certain limit. You can choose to invest through a SIP or Systematic Investment Plan to get higher returns and benefit from rupee cost averaging. Use a savings plan calculator to calculate how much to invest for earning the desired returns.
You can choose to invest in any of these savings plans based on your riskappetite, the returns expected by you, and the duration for which you wish to invest. Investment in these plans will help you prepare for any type of eventualities besides meeting long-term goals.
