The small savings schemes are one of the safest long-term investment options in India, easily accessible to all citizens of the country at their nearest bank or post office. The safety of these investments comes from the guarantee backed by their government.
In addition to this, it is convenient to invest as low as 500 rupees per-year and comes with tax benefits under section 80C of the Income Tax Act.
Apart from these benefits, compared to bank deposits, the healthy interest rates offered on these can double your funds through the compound effects.
Investing In These Schemes
The compound effect, which means making interest on interest, is the process of generating extra interest by re-depositing or re-investing the interest earned on the said deposits.
For example, if you deposit 1000 rupees at 7% interest per year, the interest you earn in one year will be 70 rupees. Due to the compound effect, this sum-will be re-invested into the scheme, which means that in the next year, instead of earning interest on 1,000 rupees, you will earn-interest on 1,070 rupees, and then this interest-will be added to estimate the base to calculate interest for the next year.
Based on the same effect, here’s how 10,000 rupees now invested in lumpsum in three small savings schemes will double in about ten years.
SSY (Sukanya Samriddhi Yojana)
Currently, the interest provided by the scheme is 7.60%, and the interest-is-compounded annually. In 10 years, the interest earned on a one-time investment of 10,000 rupees will be 11,231 rupees. By the end of the year, your total amount in your SSY account will be 21,231 rupees.
- The scheme can only be begun in the name of a girl child under ten years of age.
- The scheme is valid for 15 years only, which means that your funds must be locked for at least 15 years.
- The minimum deposit for a fiscal year is 250 rupees in-order-to keep the account active. On the other hand, the maximum amount you can deposit in a year is 1.5 lakh rupees. There is no limit to the number of deposits in a month or a fiscal year.
- From the date of the opening, the deposit can be kept for up to 15 years only.
- After 21 years from the date of opening the account, or when a girl who has reached the age of 18 gets married (1 month before the wedding or 3 months after the wedding), the account can be closed.
- After the girl reaches the age of 18 or reaches the 10th level, Withdrawals can be made from the account.
- If you want to start an investment of 10,000 rupees per year in the name of a one-year-old girl in 2020, the total investment towards the scheme will be 135,000 rupees, and the total interest earned will be 246,909 rupees, which will mature in the 2041 year. The maturity value will be Rs 381,909 at the end of the maturity period.
Public Provident Fund (PPF)
Currently, the interest-offered on this scheme is 7.10% and is compounded-annually. In 10 years, the interest earned on a one-time investment of 10,000 rupees will be 10,214 rupees, and your total amount in your PPF-account will be 20,214 rupees by the end of 10 years.
Points to be noted:
- This scheme will be valid for 15 years, which means that your funds must be locked for at least 15 years.
- The minimum deposit that must be deposited in a fiscal year is Rs. 500 to keep the account active. On the other hand, the maximum amount you can deposit in a year is 1.5 lakh rupees. You can deposit 12 times per fiscal year.
- You can extend this scheme for 5 years beyond the current limit of 15 years. When you do this, you will be offered the interest rate present at the time of renewal.
Kisan Vikas Patra (KVP)
- Currently, the interest offered by the scheme is 6.90% and the interest is compounded annually.
- Based on current interest rates, the investment amount of this scheme will double within 124 months (10 years and 4 months).
- If you want to invest 10,000 rupees in a lump sum in your KVP account, at the current interest rate, it will grow to 19,926.74 rupees in 10 years and 4 months.
- The minimum opening amount for a KVP account is 1,000 rupees, followed by multiples of 100 rupees.
- There is no maximum limit.
The deposit shall mature on the maturity date (applicable on the deposit date) prescribed by the Ministry of Finance from time to time.