When carefully observed under expert financial perspective, first creating one or more avenue(s) for savings and investment and then spending the rest of the earnings, is the ideal method for wealth creation from your hard-earned money. Saving is one of the most important parts of financial planning and next comes investing the same. There are many avenues for saving your disposable income.
Most Popular Savings Plans in India
- Life Insurance Plans
Technically Insurance is not considered to be a form of investment. However, some life insurance plans come with an element of savings incorporated in them. The awareness of investing in a life insurance plan is quite significant across India. The 2 most popular types of Life Insurance Plans in India are Endowment Plan and Anticipated Endowment Plan, popularly known as Money-Back Plans.
- Endowment Plans
This is an exclusive insurance tool to include the features of both the savings plans as well as insurance schemes. It offers both maturity benefits as well as death benefits. On maturity, the insured person receives the assured sum or in case the policyholder dies during the course of the term, the concerned family receives the basic sum. - Money-back Plan
Under the money-back plans, a certain amount is paid to the insured periodically at specific and fixed intervals of the plan during the tenure, whereas the remaining amount is payable at maturity. In case of the death of the policyholder during the course of the plan, the total assured amount is received by the nominee without any deduction of the survival benefits that have already been paid. This sort of plan even involves additional bonuses and reversionary benefits. This scheme offers maturity, survival along with death benefit options with guaranteed returns.
| Endowment Plans | Money-back Plans | |
| Tenure | Minimum 5 years, can be as long as 40 years | Usually, 10-15 years, can be 25 years as well |
| Tax Benefit | Premium paid is tax-free under section 80C and maturity benefit is tax-free under section 10(10)D provided the sum assured is at least 10 times the premium | Premium paid is tax-free under section 80C and maturity benefit is tax-free under section 10(10)D provided the sum assured is at least 10 times the premium |
| Benefits Received | Sum Assured is paid on maturity or on earlier death. | Survival Benefit is paid on predefined schedule and maturity benefit on policy maturity. However, the death benefit is paid to the nominee if the life insured dies within the policy tenure, irrespective of the amount already paid. |
| Returns | Guaranteed maturity benefit + Additions and Bonus, if the policy is participating | Guaranteed survival and maturity benefit + Additions and Bonus, if the policy is participating |
| Can be Availed From | Insurance companies | Insurance companies |
- Fixed Deposit
India has been a savings-oriented economy forever. However, most Indians have not even ventured into any other investment product other than Fixed Deposits offered by Banks and Post Offices as well as Government Bonds. Thus, to cater to such a large population, there are many schemes and offers by the Banks and the Post Office of India for you to choose from.
A Fixed Deposit is offered by banks, Non-Banking Financial Companies, popularly known as NBFCs as well as Post Office. However, the Fixed Deposit of a Post office is known as a term deposit. In a fixed deposit, you can invest a lump sum amount of money at a predetermined rate of interest for a fixed period. This is a guaranteed investment. The rates may vary from bank to bank and depend on the tenure of investment. - Recurring Deposit
Recurring Deposit is very similar to Fixed Deposit but needs to be paid every month. This is a type of term deposit that creates an avenue of savings and investment for people with regular income flow. It requires a deposit of a fixed amount on a monthly basis for a fixed tenure, upon which interest is calculated. It is considered to be one of the safest savings tools that creates a significant wealth corpus at the end of the term. Planned RD investment also inculcates the habit of curtailing unnecessary expenditure and wisely saving for a secured financial platform.
| Fixed Deposit | Recurring Deposit | |
| Tenure | Can range from 7 days to 10 years | Can range from 7 days to 10 years |
| Tax Benefits | If a 5-year tax saving FD is selected, only then the same gets a tax benefit under section 80C upto INR 1.5 lakhs a year. However, interest is taxable | No Tax Benefit. Even interest is taxable |
| Benefits | Guaranteed returns | Guaranteed returns |
| Can be Availed From | Banks, corporates and post office | Banks and post office |
- Post Office Term Deposit Scheme
This is a type of term deposit that is available in 4 variable tenures—1 year, 2 years, 3 years and 5 years. It is even available for minors of above 10 years of age. The deposit for 5 years even offers income tax benefits prescribed by the Income Tax Act. - National Savings Scheme
Administered either by the public sector financial institutions or by the Government of India, there are variable savings schemes available under this plan. It can be of different tenures, tax implications and variable rates. It is a perfectly safe investment tool as it enjoys sovereign backing. Some of the most popular NSS for regular investors include:
- Post Office Monthly Income Scheme
This ensures the generation of a fixed monthly income that gets accrued on the lump-sum investment for a tenure of 5 years. It is exclusively available for the Indian citizens with a minimum investment value of INR 1,500. - Post Office Recurring Deposit Account
Here, the investors are required to deposit a fixed amount of money every month for a period of 5 years which can be further extended up to 10 years. There is no upper limit under this scheme. - Post Office Savings Account and Post Office Time Deposit Account
The Post Office Savings account is similar to the regular savings account of banks. It can be opened on behalf of the minors too by the parents or the legal guardians. The investors are eligible for tax benefits up to INR 1,000 in a single financial year. However, no such deductions apply to the accrued interest.
A Post Office Time Deposit Account is similar to a fixed deposit account. It can be started with a minimum deposit of INR 200.
- Public Provident Fund
This is a small saving scheme which helps in corpus building in the long run. The interested investors can open the account either in a post office or in any selected financial institutions with a minimum deposit of INR 500 a year. Only a single account can be maintained under this. Moreover, between the 3rd and 5th year, the investors can even avail the loan facility.
Not only a savings option, but PPF is also a tax-saving tool. It can be operated with a meagre INR 500 yearly investment. Introduced by the National Savings of Finance Ministry, the target of this scheme is the proper mobilisation of the small savings of the people, offering guaranteed returns along with tax benefits.
| PPF | |
| Tenure | Minimum 15 years, but can be extended in multiples of 5 years |
| Tax Benefits | The amount deposited in PPF is tax-free under section 80C upto INR 1.5 lakhs a year. Even maturity benefit is completely tax-free |
| Benefits | Guaranteed returns, which is declared by the Government every quarter + completely tax-free returns |
| Can be Availed From | Banks and post office |
- Kisan Vikas Patra : Ideal for small investors, any Indian citizen above the age of 18 years can avail this scheme. It comes with a lock-in period of 30 months. Moreover, it can also be used as collateral during loan undertaking from secured financial institutions.
- National Savings Certificate : Under this scheme, both individuals, as well as a joint account, can be opened at the post office. The tenures are either 5 years or 10 years. There is no maximum limit of investment and can also be used as collateral for availing a loan.
Issued by the Government of India, this savings tool possesses sovereign backing. It is mainly used for small scale savings. This financial instrument is a part of the postal savings scheme under the Indian Postal Service and is also a tax-saving instrument.
| Criteria | Features |
| Tenure | 5 years |
| Amount to be Deposited | Minimum of INR 1,000 and in multiples of INR 100. No maximum limit |
| Rate of Interest | 6.8% compounded annually but payable on maturity |
| Tax Benefits | Qualifies for deduction under Section 80C of the ITA. No TDS. |
| Benefits | Multiple accounts can be maintained. It can be opened in the name of minors too who have completed 10 years. |
- Senior Citizens Savings Scheme
Any Indian resident of above 60 years of age can avail this scheme that comes with a maturity period of5 years. It can be extended to up to 3 years on maturity. The premature withdrawal facility is there and the investment amount should be in multiples of INR 1,000. The earned income is entirely taxable and if the aggregate interest-earning goes above INR 50,000 in a single financial year, it attracts TDS. - Pradhan Mantri Vaya Vandana Yojana
Any resident Indian or above 60 years of age can avail this scheme. The tenure is of 10 years. When bought online, it comes with a lock-in period of 30 days. But a meagre stamp charge gets deducted during the extension of the refund. The investors are eligible to get a loan against this scheme after 3 years of investment. - Sukanya Samriddhi Yojana
This small savings scheme has been exclusively designed for Indian girl children up to 10 years of age. The minimum deposit amount for opening is INR 250. The maximum investment limit here in a single financial year is INR 1.5 lakh. It can be opened either by the parents or the legal guardian of the girl child. If the account holder is above 18 years, premature withdrawal is applicable up to 50% of the total deposit.
| Features | Post Office Monthly Income Scheme | Post Office RD Scheme | Public Provident Fund | National Savings Certificate |
| Joint Account Facility | Available | Available | Not Available | Available |
| Interest Rate | 6.6% | 5.8% | 7.1% | 6.8% |
| Maturity | 5years | 5years and 10 years | 15 years and can be extended by another 5 years | 5 years and 10 years |
| Premature Withdrawal Facility | Available | Available | Available under specific conditions | Available under specific conditions |
| Tax Benefits | Not allowed | Not allowed | Allowed—both the investment amount and the accumulated returns are exempted from tax under Section 80C. | Allowed—Tax benefits up to INR 1.5 lakhs under Section 80C. |
- Corporate Bonds
These bonds are issued to raise the relevant financial resources for the expansion of any business, for any ongoing operations or any other reasons. Issued by various corporations, the corporate bonds are debt securities that are sold to the investors and are backed by the physical assets of the relevant corporations which have issued the bonds.
The corporate bonds are rated based on the overall health of the corporation’s debt structure, default probability as well as the basic market performance.
These corporate bonds are considered to carry a considerably higher risk potential than government bonds which is the reason why the interest rate of the corporate bonds is always on the considerably higher side.
Some of the most popular corporate bond funds of the country are:
| Bond Fund | 3 Years | 5 Years |
| SBI Magnum Constant Maturity Fund | 10.63% | 10.65% |
| ICICI Prudential Constant Maturity Gilt Growth | 10.36% | 10.88% |
| L&T Triple Ace Bond Fund Growth | 9.55% | 8.81% |
Some of the important considerable factors:
- Ideal for long-term investment
- The knowledge of the overall market performance is essential
- It is better to choose from the comparatively larger AMCs for better security and lower risk
- Government Bonds
These are issued by the national government. It pays interest periodically which are termed as coupon payments. The government bonds are also known as Sovereign Bonds. These bonds repay the face value of the bond on maturity. It offers guaranteed returns and is considered to be a wise savings instrument. The rate of interest under this scheme gets revised every 6 months. The current rate of interest is 7.15% p.a. It can be opened by the resident individuals as well as HUFs. The investment amount should be multiples of INR 1,000 with a minimum of INR 1,000. The floating rate of interest that these bonds carry is computed at 0.35% above the reference rate of the prevailing rate of interest of National Savings Certificate.
| Criteria | Features |
| Issued by | National Government of India |
| Rate of Interest | 7.15% p.a. (revised every 6 months) |
| Who can Avail | Resident individuals and HUFs |
| Investment Amount | Minimum of INR 1000 and above in multiples of INR 1000 |
| Tenure | 7 years |
| Tax benefits | None and the interest income is entirely taxable |
- Mutual Funds
This is considered to be both an investment as well as a savings tool. It pools money from the investors for purchasing stocks and securities. The mutual funds are managed by experts whose job is to diversify the investments of the investors in several debts and equity options. The mutual fund investments come with several advantages as well as disadvantages when compared to direct share and security investments. This is because the performance of the mutual fund returns is directly associated with the overall market performance.
Savings is the Foundation for Financial Growth
Each of these savings plans discussed here come with their own sets of advantages and disadvantages. Each of them possesses certain unique features providing fixed income benefits and assuring a guaranteed return of investment. Most of these options have minimal risk involvement. Therefore, based on the financial targets, the income factor and the risk appetite, any of these above-mentioned savings options can be chosen.