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PPF, SSY and Kisan Vikas Patra: What are 'Small Saving Schemes' and their Importance?

Image used for representation.

Image used for representation.

Not everyone can afford to invest in mutual funds or take the risk of plunging into market-linked savings or investment plans.

The general excuse for most middle-class families for not saving enough is that the earning is not remotely enough that one can think about stashing something away as savings. Not everyone can afford to invest in mutual funds or take the risk of plunging into market-linked savings or investment plans.

It is for these people we have the Small Savings Schemes (SSS) like the Sukanya Samridhi Yojana (SSY), Public Provident Fund, Kisan Vikas Patra and National Savings Certificate. Take the example of SSY, it provides a return of 7.6 per cent currently with maximum deposit amount capped at Rs 1,50,000 with the amount maturing after 21 years.

This scheme provides a maximum tax benefit of Rs 1.5 lakh under the Income Tax Act’s Section 80C and the interest in addition to the maturity amount is also exempt from tax.

The rate of interest in bank fixed deposits, as well as savings accounts, have been falling rapidly especially after the coronavirus pandemic. In Small Savings Schemes, the rate of interest remains constant from the time of investing to the date of maturity of your investment.

These small scale plans not only help you manage your daily expenses but also help to secure your long-term future. Government-backed small saving instruments encourage small-income investors to invest to earn high returns and to save on income tax as well.

The National Savings Certificate (NSC) is one such example, which is a fixed income saving instrument that is worth mentioning in this regard as it offers investors a fixed return and is ideal for people with low-risk appetite.

The small savings scheme also comes with a sovereign guarantee which is additional fillip for the investors. The principal amount of the small-time investors is always secure with these schemes and the interest is payable quarterly according to prevalent income tax rates depending on one’s income.

Such schemes are also ideal for senior citizens. Plans like the Senior Citizens Saving Scheme gives interest as high as 8.7 per cent per quarter – way above any bank’s fixed deposits. Other plans like the NSC gives a steady return for a period of 5 years with compounding benefits.