Small savings scheme

Small savings scheme

News: The Government of India has hiked interest rates on some of the Small Savings Schemes (2-year and 3-year Time Deposits, Senior Citizens Savings Scheme and KisanVikasPatra) for October-December 2022.

What are small saving schemes?
• They are set of savings instruments managed by the central government with main purpose to encourage citizens to save regularly irrespective of their age. 
• They are popular amongst investors owing to following reasons – they provide higher returns as compared to fixed deposits, are backed with government guarantee and tax benefits. 
• The deposits received under various savings schemes are pooled under the National small savings fund. The money is used by the government to finance its fiscal deficit. 

How are rates determined?
• Interest rates on small savings schemes are reset on a quarterly basis, in line with the movement in benchmark government bonds of similar maturity. The rates are reviewed periodically by the Ministry of Finance.
• The ShyamalaGopinath panel (2010) constituted on the Small Saving Scheme had suggested a market-linked interest rate system for small savings schemes.

Classification of various Small saving schemes:
• KisanVikasPatra (KVP) - It is a saving certificate scheme that was launched to encourage long-term financial discipline. The scheme was closed in 2011 by the Government of India after a Government Committee suggested that this scheme can be misused for money laundering purposes. The KisanVikasPatra (KVP) was later relaunched in the year 2014. According to the 2014 amendment of KisanVikasPatra, the scheme provides a tenure period of 118 months with a minimum investment of Rs. 1000.
• National Savings Certificate (NSC) - A fixed-income instrument like Public Provident Fund and Post Office FDs, this scheme too is a low-risk fixed-income product.NSC comes with a fixed maturity period of five years. There is no maximum limit on the purchase of NSCs, but only investments of up to Rs.1.5 lakh can earn you a tax break under Section 80C of the Income Tax Act. The certificates earn a fixed interest, which is currently at a rate of 6.8% per annum. The interest rate is revised on a regular basis by the government.
• Public Provident Fund (PPF) - Individuals can open a PPF account at banks or at post offices. Earlier, opening a PPF account was allowed only at Nationalized Banks, however, some private banks also offer the PPF scheme. A minimum amount of Rs. 500 is needed and maximum investment is Rs. 1.5 Lakh for every financial year. Tenure is 15 years, deposits in PPF account have to be made once every year and you can also avail loan against your PPF during the third and sixth year of your contribution. The current PPF rate is 7.1 % and is compounded on an annual basis. 
• Post office deposits such as Savings deposits, Recurring deposits and time deposits with 1,2, 3 and 5 year maturities. 
• SukanyaSamriddhiYojana – Launched exclusively for Girl child. The account can be opened in the name of a girl child below the age of 10 years.The scheme guarantees a return of 7.6% per annum and is eligible for tax benefit.