Small savings schemes is among the safest long-term investment options in India that are also easily available to all residents of the country at their nearest post-office or bank. The safety of these investments comes from their government-backed guarantee.
There is also the convenience of investing as little as Rs 500 per year and comes with tax benefits under section 80C of the Income Tax Act.
Apart from these benefits, the healthy interest rates offered on these when compared to bank deposits can also be used to double your money with the help of the compounding effect. The compounding effect, which simply means earning interest-on-interest, is the process of generating additional earnings by re-investing (or re-depositing) interest earned on the said deposits.
For example, if you deposited Rs 1,000 at 7% interest per annum, the interest you earn in a year will be Rs 70. With the compounding effect, this amount will be reinvested into the scheme, which means that in the following year, instead of earning interest on Rs 1,000, you will earn interest on the Rs 1,070 and then this interest will be added to estimate the base to calculate interest for the following year. Based on the same effect, here’s how Rs 10,000 now invested in lumpsum in 3 small savings scheme will double in around 10 years.
Public Provident Fund (PPF)
Interest offered on the scheme is currently 7.10% and interest is compounded yearly. In 10 years time, the interest earned on Rs 10,000 lumpsum investment will be Rs 10,214, taking the total amount in your PPF account by the end of 10 years to Rs 20,214. Things to note: The scheme has a maturity period of 15 years, which means your funds have to be locked for a minimum period of 15 years. The minimum deposit to be made in a financial year is Rs 500 to keep the account active. On the other hand, the maximum you can deposit in a year is Rs 1.5 lakh. You can deposit 12 times a financial year. You can extend the scheme by 5 years beyond the current limit of 15 years. When you do so, you will be offered the interest rate present at the time of renewal.
Sukanya Samriddhi Yojana (SSY)
Interest offered on the scheme is currently 7.60% and interest is compounded yearly. In 10 years time, the interest earned on Rs 10,000 lumpsum investment will be Rs 11,231, taking the total amount in your SSY account by the end of 10 years to Rs 21,231.
Things to note
The scheme can only be started in the name of a girl child below 10 years of age.
The scheme has a maturity period of 15 years, which means your funds have to be locked for a minimum period of 15 years.
Minimum deposit to be made in a financial year is Rs 250 to keep the account active. On the other hand, the maxium you can deposit in a year is Rs 1.5 lakh. There’s no limit on the number of deposits either in a month or in a financial year.
Deposits can be made for a maximum of 15 years from the date of opening.
The account can be closed after 21 years from the date of account opening or at the time of marriage of girl child after attaining age of 18 years (1 month before or 3 month after date of marriage).
Withdrawals may be made from the account after the girl child attains 18 years of age or passed 10th standard.
If you were to start a yearly investment of Rs 10,000 in the name of a 1-year-old girl in 2020, the total investment towards the scheme will be Rs 135,000 with the total interest earned being Rs 246,909 and maturity year 2041. The maturity value at the end of maturity will be Rs 381,909.
Kisan Vikas Patra (KVP)
Interest offered on the scheme is currently 6.90% and interest is compounded yearly. Amount invested in this scheme will double in 124 months (10 years & 4 months) at the current interest rate.
If you were to invest Rs 10,000 in lumpsum in a KVP account, it will grow to Rs 19,926.74 in 10 years and 4 months, at the current rate of interest.
A KVP account can be opened with a minimum amount of Rs 1,000 and in multiples of Rs 100 thereafter. There is no maximum limit.
The deposit shall mature on the maturity period prescribed by the Ministry of Finance from time to time as applicable on the date of deposit.
