1. Public Provident Fund (PPF):
One of the most common and safest saving options opted in India and the reason for it being the safest option is because it’s a Government-backed saving scheme. PPF account can be opened with designated banks or post office. PPF also provides you with the flexibility to transfer the account from one bank to another or from the bank to the post office or vice versa. The current applicable interest rate on PPF w.e.f January 1, 2021, is 7.10%. The locking period applicable is 15 years with the minimum amount of Rs.500/-. One can contribute up to a maximum of Rs.1,50,000/- in the account. The contribution to the account can be made on a lumpsum basis or 12 monthly basis. Contribution to the PPF account is tax-deductible under section 80C. Moreover, interest earned on the PPF account is also tax exempted.
2. Fixed Deposit (FD)/ Time Deposits:
A fixed deposit is a kind of saving account opened with a bank where the bank pays a higher rate of interest. Interest earned on FD is higher as compared to the interest earned on the saving account. The maturity of short-term FD may be from 7days to 1 year. Long-term FD can be as long as 10 years. FD’s are of risk-free nature and the returns earned are also guaranteed. Hence it is also one of the safest options to invest. However, unlike interest earned on PPF, interest earned on FD is fully taxable.
3. Recurring Deposits (RD):
Recurring deposit accounts are a type of saving accounts wherein you invest a fixed amount on a monthly basis for a fixed period. Flexibility is available in selecting the amount and the time period for which the investment is to be made. RD accounts can be opened both with a bank and post office as well. The opening of RD accounts inculcates a saving habit among the public. Pre mature withdrawals in RD account are forbidden.
4. Post Office Monthly Income Scheme:
This monthly income scheme is sponsored by the Government and is most suitable for persons seeking fixed monthly income but at the same time are hesitating to take risks for their investments. Hence the scheme is more suitable for retired personals or senior citizens. The advantage of this scheme is that a person can open ‘n’ number of POMIS accounts but there is a restriction on cumulative investment that can be done. A person can invest up to Rs.4,50,000/- insole operated account and in the case of a joint account, it can be made up to Rs.9,00,000/- The disadvantage of this scheme is that it is not tax-deductible and the income generated is taxable. In POMIS you need to invest an amount for a fixed tenure and in return, you earn monthly interest on the deposited amount. At the end of the tenure, you receive the deposited amount back. The maturity period of the scheme is 5 years. The Lockin period is 1 year and premature withdrawal is permitted.
5. National Savings Certificate (NSC): NSC is a saving plan scheme sponsored by the Government; most suitable for small to mid-income generators. NSC generates a fixed return and as it is sponsored by the Government it is a low-risk investment. The maturity plan available under this option is of 5years. The current applicable rate is 6.8%. The scheme is tax-deductible and interest earned on it is also tax-deductible because in this scheme the interest earned is added back to the original investment and compounded annually. Only individuals can opt for this scheme. Another advantage for opting for this scheme is that banks and NBFC’s accept NSC as collateral against the secured loan to be availed.
6. Sukanya Samruddhi Yojana:
A scheme designed by the Government exclusively for the better future of girls. The account can be opened by the natural or legal guardian of the girl child whose age must be below 10 years. Minimum investment of Rs.1000/- and maximum investment of Rs.1,50,000/- can be made in a financial year. Deposits in the account can be made till the completion of 14 years from the date of opening of the account. The account shall mature on completion of 21 years from the date of opening of the account. A partial withdrawal facility is available after attaining 18 years of age for the purpose of marriage or higher education.
7. Equity Linked Savings Scheme (ELSS): ELSS is a mutual fund scheme that invests in the stock market or equity. In ELSS funds are invested in stocks of various listed companies of large, mid, and small capital industries. The best part of ELSS is that both risk and returns on the investment portfolio can be balanced. The Lock-in period for ELSS is only 3 years as compared to PPF where the lock-in period is 15 years and NPS is more of a retirement scheme where the lock-in period is up to the age of 60 years. One can sell the investments after the locking period of 3 years, but if one wants to earn higher returns then keeping the investments for a maximum duration is recommended. Moreover, investing in ELSS is tax-deductible under section 80 C. Also gains from ELSS are taxable at a very nominal tax rate. Long-term capital gains are taxable at 10% only if the gains are above Rs.1 lac. It means LTCG up to Rs.1 lac is exempt from tax. In the case of STCG tax liability is to be paid at the rate of 15%.
8. Systematic Investment Plan (SIP):
SIP is an investment strategy wherein one can invest on a weekly/monthly/yearly basis. The difference between ELSS and SIP is that ELSS is invested in equities of listed companies while SIP is a mode of investment for regularly investing in mutual funds. One can invest in ELSS through lump sum amount or through SIP. So, one can notice that SIP is not some different type of investment; rather it’s a way of making an investment.