Best Saving Schemes: Features, Types & Benefits

Everyone sets aside some excess portion of their income to accumulate their wealth over time. This is called saving because the money is saved for the future, where it could be used to meet some emergency expenditure or fulfil some dreams, or even support the investors after retirement. By investing in the right instruments, investors can save their money while growing their wealth and getting good returns.Investors have different risk appetites and may have different objectives for savings. For instance, some investors may be willing to bear the high risk to get higher returns but want short-term returns, while others will want low risk and can afford to invest for a longer duration. Some may want more liquidity, and some may be okay with investing in financial instruments with a lock-in period of a few years.Even the current situation of the economy plays an important role in analyzing which savings options are the best. If the equity markets are too volatile, investors may prefer saving in instruments offered by banks and the government instead of market-linked saving instruments.Factoring in all the different types of investors, here are the top 10 savings plans for investors in 2023 that offer adequate returns and tax benefits and are for an appropriate tenure.

1) Provident Fund:

Managed by the Employee Provident Fund Organization (EPFO), this is a government-led initiative to ensure employees (salaried individuals) indulge in savings that can help them after their retirement. Every month, the employer deducts a portion of the investment towards the EPF and contributes the same amount to the PF account of the employee. This gets accumulated at the annual rate of interest set by the government and can be withdrawn upon retirement or in certain emergencies. A PPF is best for someone who is planning for retirement and for those who want to avail any tax benefits. Expected returns range from 12 - 15% p/a while the risk involved in this investment product is low.

Features and benefits of PF:

1. Up to 12% of the employee's monthly basic salary is deducted and invested in the PF account.
2. The amount invested comes with tax benefits in the form of deductions.
3. The employer must make an equal contribution from their end.
4. Employees can opt for VPF (Voluntary Provident Fund) and invest a higher amount which is deducted from their salary. The employer will not have to match the VPF amount.
5. On the first of every month, the interest is credited to the employee’s PF account and reinvested.
6. Every year, the interest rate for the year for provident funds is announced by the government.
7. This option is not available to non-salaried individuals. However, they may opt for Public Provident Fund, which has slightly lower returns.

2) Equity-linked Savings Scheme (ELSS):

Equity Linked Savings Schemes, or ELSS Funds, are tax-saving equity-oriented mutual funds. In order to qualify as an ELSS fund, an equity fund must invest at least 80% of its capital in equities or products with an equity component. ELSS funds are well-liked tax-saving strategies since they provide a tax exemption of up to Rs. 1,50,000 from the annual taxable income in accordance with Section 80C of the Income Tax Act. The returns from this plan have a three-year lock-in period, and beyond that time, they will be subject to long-term capital gain (LTCG) tax at a rate of 10%. (if the income is above Rs. 1 lakh). Equity-linked savings scheme offer market-linked returns with tax savings and is considered as a high-risk investment which involves liquidity risk and market risk. Features and benefits Of ELSS:

1. There is a lock-in period of 3 years for ELSS investments.
2. An investment of as low as Rs. 500 per month can be made.
3. Since they would fall under long-term capital gains, taxpayers have an exemption from tax if their returns are less than Rs. 1 lakh.
4. At least 80% of the fund's assets should be equities.
5. The returns can be a part of deductions under Section 80C .

Also Read: Why ELSS Should Be Your First Mutual Fund?

3) Government Bonds:

Government bonds are issued by the government to encourage investor contribution in the domestic bond market. They can be issued by both the state and the central governments. Most of the government bonds are fixed-rate bonds that carry a pre-determined interest rate which is distributed at regular intervals or can be reinvested. The maturity value is higher than the investment value, thus giving good returns. Long-term bonds carry higher returns. Government Bonds are best for someone who is looking for a safety investment option, as the risk involved is particularly low in this investment product. Features and benefits of Government Bonds:

1. The tenure can be 1 year and even go up to 40 years.
2. They are debt instruments.
3. They can carry a floating rate or a fixed rate.
4. There are many different types of government bonds with varying maturity periods, interest rates and offers or schemes.
5. Their returns are lower than other investment options.
6. They are not as liquid as some other financial instruments.
7. Apart from some specific bonds, the returns from the bonds will be subjected to regular income tax regulations.
8. The government issues them and is entrusted with giving the returns.
9. Some government bonds are specifically meant to offer returns that beat inflation.

4) National Pension Scheme (NPS):

National Pension Scheme (NPS) is a retirement-planning savings instrument. Anyone between the ages of 18 to 60 can opt for this scheme. It is a non-market linked savings instrument where the investor can choose from different pension fund managers and asset groups, like equity, bonds, etc., to invest in through the National Pension Scheme. It is split into two - Tier I NPS and Tier II NPS . A portion of the returns can only be withdrawn upon retirement, and the remaining portion of the returns will be distributed as monthly pension payments to the retired individual. It's best for individuals focusing on retirement planning with tax benefits for those who don’t have a liquidity crunch. It is a low risk investment

Features and benefits of NPS:

1. If the investment in National Pension Scheme has taken place for 3 years, the investor can withdraw up to 25% of the funds for certain specified purposes.
2. The specified purposes include medical expenses, purchasing a house or higher education for self or dependents.
3. Upon retirement, 60% of the corpus is distributed as a lump sum, and the remaining is distributed as monthly pension payments to the individual.
4. Only 3 withdrawals can take place before maturity, but each should have a gap of at least 5 years between them.
5. Tax benefits are available under Section 80CCD , where a total of Rs. 2,00,000 can be claimed as a deduction if invested in NPS every year.
6. An investor can choose to invest in NPS any number of times in a year.

5) Sovereign Gold Bonds (SGBs):

This is also a type of government bond, but they are linked to the prices of gold. Since the underlying asset is gold, these bonds are denominated in grams of gold. Therefore, investors invest in Sovereign Gold Bonds for 10 grams, 50 grams or any quantity of their choice. They carry interest and are issued at a discount and maturity at the current gold rates on the date of maturity. While the interest payouts carry tax, the maturity amount is tax-free. SGBs mature in 8 years but can be redeemed within 5 years. Sovereign Gold Bonds are a good fit for individuals looking for investments that are long-term but not if retirement, commodity non-market linked investments to balance the portfolio. The risk involved is low to medium risk.

Features and benefits SCBs:

1. The price of gold is almost inversely proportional to the price of equities; therefore, this is a good hedge against market-linked risks.
2. The interest payout happens at 2.5% per year, paid twice a year.
3. The maturity period is 8 years.
4. There is a 5-year lock-in.
5. They can be traded on the secondary market at a profit since they are issued at a discount.
6. Returns upon maturity are tax-free.
7. RBI issues SGBs multiple times a year.

Also Read: Find Out How to Invest in Sovereign Gold Bonds Online Expected returns range: 2.5% per year as interest paid twice (1.25% each time), issued at a discount of Rs. 50 per gram.

6) Unit-Linked Insurance Policies (ULIPs):

Unit-Linked Insurance Policies (ULIPs) offer the dual benefit of being an investment and offering insurance coverage to investors. The investor pays a periodic premium for the insurance plan. The funds collected are invested in equity and debt-based funds to maximize returns. They come with tax benefits under section 80C and are generally long-term investments of 10 years with a lock-in period of 5 years. In some cases, the investor can choose to stop paying the premium after three years and let the invested amount grow over time. Unit-Linked Insurance Policies are medium to high-risk investments.

Features and benefits of ULIPs:

1. Tax benefits are on the premium paid as well as the proceeds received upon maturity or funds withdrawn at the end of the 5 years lock-in.
2. They offer market-linked returns, which is why they carry high risk against potentially high returns.
3. They come with insurance and a sum assured of up to 10 times the amount invested.
4. The premium paid can be claimed as a deduction under section 80C up to Rs. 1,50,000 per year, which is the cap of the entire section 80C.
5. The sum assured and returned upon maturity or withdrawals at the end of 5 years will also be tax-free.
6. ULIPs may have some hidden charges; therefore, investors must assess their investments carefully.

7) Real Estate Investment Trusts (REITs):

Investing in real estate has been an extremely popular form of investment in India. However, real estate prices can be extremely high and maintaining a property also comes with additional costs. Real Estate Investment Trusts (REITs) were introduced with the objective of making it easier for investors to invest a small amount and get partial shares of a commercial property on which they can enjoy the commercial rental yield. Investments are made through initial public offerings (IPOs) and follow-on offers (FPOs) of REITs that are listed on stock exchanges. A minimum investment of Rs. 10,000 to INR 15,000 is required. At least 90% of the net rental income from a REIT's portfolio must be distributed as dividends or interest to shareholders. Thus, as a REIT investor, you can profit from dividends and growth in stock value. Real Estate Investment Trusts offer commercial yield-based returns and the risk involved is medium to high-risk.

Features and benefits of REITs:

1. The trust distributes units of Rs. 10,000 and above that can be purchased by investors. These can be understood as fractional ownership of a commercial property.
2. At present, there are three REITs in India. They are the Embassy Business Park REIT, Mindspace Business Parks REIT, and the Brookfield India REIT.
3. REITs don’t have too many tax benefits. Still, there are many different forms of income that the investor receives, like dividends, interest and returns from increases in the value of the units.

8) Fixed Deposits:

Fixed deposits offer a higher rate of interest than interest on funds parked in a regular savings bank. They offer fixed and guaranteed returns from the bank, but the interest rate is usually not as high as other forms of investments. Fixed Deposits are mostly liquid assets; however, if funds from a fixed deposit are withdrawn before maturity, the investor will not receive the interest and will have to pay the penalty. As a long-term investment option with minimal risk, fixed deposits could accumulate in value over time. They are also an excellent hedge for market-linked investment options. Fixed Deposits offer fixed and guaranteed returns with very low risk overall.

Features and benefits of FD:

1. Fixed deposits have a fixed pre-determined rate of interest.
2. Senior citizens get a higher rate of interest than other individuals from a fixed deposit.
3. Fixed deposits come with tax benefits under section 80C for the interest earned during that year.
4. Recurring deposits are periodic investments like fixed deposits.
5. Fixed deposits are non-market linked; therefore, they are not affected by market volatility.

Expected returns range: 4% to 8% per annum.

9) Post Office Senior Citizen Savings Scheme:

The Post Office Senior Citizen Savings Scheme or simply called Senior Citizens Savings Scheme (SCSS), is a post office investment scheme that primarily offers financial security and a source of regular income to senior citizens post-retirement. This is applicable only to those who have reached the age of 60 or those who are 55 years of age but have retired. Considering the scheme’s target audience, the risk involved is low.

Features and benefits of Post Office Senior Citizen Saving Scheme:

1. Deposits can be made in multiples of Rs. 1,000, but the maximum investment that can be made is Rs. 30,00,000.
2. It has a 5-year lock-in period.
3. The interest rate is pre-determined and announced every year.
4. Tax benefits are available on the returns, but if the interest is above Rs. 50,000, TDS will be deducted.
5. After the first year of the account's creation, premature withdrawals are permitted. A penalty of 1.5% of the entire deposit amount is applied to withdrawals made after one year. In contrast, a 1% penalty on the deposit value is removed for withdrawals made after two years.
6. Using PDCs or the post office's money order system, the interest can be withdrawn.
7. Investors are allowed to open as many accounts as they want and even do so with family members.
8. Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs) are ineligible to invest in the Senior Citizens Savings Plan.
9. On the first working day of January, April, July, and October, the accumulated interest is paid.

Expected returns range: 8.20% per annum for the financial year 2023-24 .

10) Sukanya Samriddhi Yojana:

This is an initiative launched by the Central Government to protect and educate the girl child in India. With a minimum investment of Rs. 250 and a maximum investment of Rs. 1,50,000, this investment can only be made by family members with a daughter of less than 10 years of age. Only one account can be opened per child, and only two daughters per family can be covered under this scheme. Upon turning 18 or 21 years of age, if the girl is still in this scheme, she will get guaranteed returns. It naturally becomes a long-term investment, and investments must be made every year. Sukanya Samriddhi Yojana offers long-term investments for young girls/women with triple tax benefits with low-risk and assured returns.

Features and benefits of SSY:

1. Tax benefits under Section 80C are available on the amount invested.
2. The triple benefit is that the amount invested, the interest earned and the amount of returns on maturity are all exempt from tax.
3. Withdrawal before maturity is only allowed for the higher education of the girl, and only up to 50% can be withdrawn.