Different Saving Schemes

Unit Linked Insurance Plan (ULIP)

AUnit Linked Insurance Plan (ULIP)is an integrated plan which offerslife insurancecover and investment through a single scheme. Investment in ULIPs is tax deductible under Section 80 C up to Rs 1.5 lakh per annum and the maturity proceeds of a ULIP are also exempt under Section 10(10)(D). ULIPs specify a life insurance cover (usually around 10 times your annual premium) and they allow you to choose ULIP funds which invest in equities and/or debt and function very similar tomutual funds. The minimum annual investment varies from fund to fund but is usually set at Rs 2,500. There is no maximum limit but tax deduction is only available for contributions up to Rs 1.5 lakh per year.

Equity Linked Savings Scheme (ELSS)

ELSSor Equity Linked Savings Scheme is atype of mutual fund. ELSS Funds have a lock-in of 3 years, which is the shortest lock-in among the various tax-saving schemes in India. Investing in ELSS Funds (also called Tax Saving Funds) is tax deductible under Section 80 C up to Rs 1.5 lakh per annum. The returns on ELSS funds will be taxed as long term capital gains at a 10% rate. Dividends from ELSS funds will also be taxed at 10% under the Dividend Distribution Tax. ELSS funds invest at least 80% of their assets in equity (stocks) and offer a high compounding potential in the long term.The minimum annual investment in ELSS funds is Rs 100, although it varies from one fund to another. There is no maximum limit but tax deduction is only available for contributions up to Rs 1.5 lakh per year.

Government Savings Schemes

Mostly, government schemes are perceived as good investments due reliability, security and dependability. Let’s take a look at them :

Public Provident Fund (PPF)

The Public Provident Fund (PPF) has an interest rate of8.0%. It has a term of 15 years, which can be extended indefinitely in blocks of 5 years. The interest on the PPF is tax free and contributions to the PPF are tax deductible up to Rs 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961. You can open a PPF account with a bank or a post office. Some banks like ICICI and Axis also allow you to open PPF accounts online.You can make partial withdrawals from the expiry of 5 years from the year in which the account is opened. Loan facility is available as well but from the third year.The minimum investment amount per year is Rs 500 and the maximum investment amount per year is Rs 1.5 lakh.

Atal Pension Yojana (APY)

This is a Government run pension scheme open to all citizens of India. APY is administered by the Pension Fund Regulatory and Development Authority (PFRDA) under theNational Pension System (NPS). You can join the scheme after the age of 18 and you can opt for a monthly pension which could be 1000, 2000, 3000, 4000 or 5000 rupees after the age of 60. The amount of pension you get depends on the age at which you join the APY and the amount you contribute each month. The minimum monthly investment at is Rs 42 for those who join at the age of 18. For the minimum and maximum amounts by age and pension

National Savings Certificates (NSC)

This certificate offers an interest rate of8%compounded annually but payable only at maturity. It can be purchased from any post office. The minimum investment is Rs 100 and there is no maximum limit. The tenure for this certificate is 5 years. The interest earned is deemed to be reinvested and eligible for tax deduction up to Rs 1.5 lakh under Section 80 C. The principal amount invested also counts towards the same tax deduction up to Rs 1.5 lakh. The current issue is called the NSC VIII Issue.

Post Office Savings Account

This account is like a savings account with a bank, except that it is held with a post office. Only one account can be opened with one post office and can be transferred from one post office to another. You can also open an account in the name of a minor. The interest rate is4%and is fully taxable. However a deduction of Rs 10,000 per annum is available on your total savings account interest including post office savings interest under Section 80TTA of the Income Tax Act, 1961. The minimum balance for non-cheque account is Rs. 50 and Rs. 500 for accounts with cheque facility.

Post Office Recurring Deposit Account

In this account, you deposit a fixed amount every month and each installment compounds in value. The account offers an interest rate of7.3%that is compounded annually. The tenure for this account is fixed at 5 years which can be renewed and extended to 10 years. The minimum instalment is Rs 10. No upper limit of investment is fixed in this account. This scheme offers no tax rebate and the interest on it is fully taxable.

Post Office Monthly Income Scheme (POMIS)

This account provides monthly interest against your deposit with the post office. The minimum deposit amount is Rs 1,500 and the maximum deposit is Rs 4.5 lakhs (Rs 9 lakhs for a joint account). The interest rate on offer is7.7%. Any number of such accounts may be opened in any post office subject to the maximum balance limit (after adding balances in all accounts). The term of the POMIS is 5 years. You can set up an ECS facility to automatically credit the monthly interest from POMIS to your savings account. You can prematurely encash it after one year of opening the account. The premature encashment penalty for such a termination is 2% of your deposit within 1-3 years. If you prematurely encash it after 3 years but before maturity at 5 years, the penalty is 1%.

Kisan Vikas Patra (KVP)

KVP offers an interest rate of7.7%compounded annually. It can be purchased from any post office. The invested amount doubles every 118 months (9 years and 10 months). The minimum amount for investing in KVP is Rs 1,000. Thereafter you can invest in multiples of Rs 1,000 with no upper limit. Premature encashment of the KVP Certificate is allowed 2.5 years after purchase. The KVP certificate can be held either by a single holder or as a joint holding between two individuals. It can also be purchased on behalf of a minor. This scheme offers no tax rebate on either contributions or interest earned.