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The best small savings schemes

September 14, 2009 17:16 IST
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In the sharp media focus on stocks, fixed deposits and gold, small savings schemes have been largely ignored by the public. But they must form a part of portfolio of every investor who is looking to save tax by investing small amounts.

These schemes are safer than any other investment schemes as they are supported by government. Also they offer good returns, though they are not very liquid. Here are the most attractive small savings schemes that will help you get good returns without risking your capital.

National Savings Scheme: NSC is a guaranteed return scheme and offers tax rebates under section 80C. It offers a guaranteed interest of  8 per cent per annum for a period of 6 years, which is comparatively lower than other small savings schemes.

You purchase NSC for a particular value, which earns interest that is compounded and returned to you along with your principal when it matures.

The liquidity of NSC is quite low and you are allowed premature withdrawal only under certain situations like death of the holder, surrendered by the nominee or on court orders. You need to submit a valid proof at the time of encashing the certificate.

Kisan Vikas Patra: KVP is one more fixed income scheme belonging to small savings scheme that doubles your principal in 8 years and 7 months. It does not offer any income tax benefit, so the interest is taxable.

It is more liquid than NSC as you can withdraw your money at any time once two and half years are over. However you stand to lose the interest earned during the investment tenure. Also KVPs can be encashed at any post office throughout the country.

Post Office Monthly Income Scheme: For those investors looking for monthly income, POMIS is a must. You can invest any amount starting from Rs 1,500 to Rs 4.5 lakh (Rs 450,000) for a single account and Rs 9 lakh (Rs 900,000) for a joint account. It offers an interest rate of 8 per cent per annum.

It is a very liquid scheme as you can withdraw from the scheme at the end of one year from date of investment. But if you manage to complete the whole tenure of the scheme (6 years), you get a bonus of 10 per cent on your investment amount.

Post Office Recurring Deposit: PO-RD is equivalent to SIP in a mutual fund. Here you invest a small sum of money each month for 60 months in equal installments. It is designed for those investors who are interested in saving a fixed amount regularly each month and then get a big sum on maturity. The tenure of the scheme is 5 years.

However, you can close the account prematurely at the end of 3 years, where you will get the interest at the rate applicable to the post office savings account. The minimum deposit amount is 5 years and can be increased in the multiples of 5.

Small savings are the most ignored yet lucrative savings schemes, offered by government of India. These schemes are available at the post offices of the country. Some are quite liquid, while others are not. Some are not tax-free while others help you save tax.

But all of them offer good returns. The best part is there is no need for any documentation like PAN card, thus making these schemes attractive to people from all levels of society.

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