Financial management is an important aspect of people’s life. If handled properly, it can help them to secure their future comfortably. If not, it can create a crisis during emergencies such as medical, education, and several other things. Therefore, the best way to ensure a safe and secure financial security is to have a saving scheme in place. This will help in putting aside a significant amount of money, which can be used later when it is needed the most.
What does it mean by saving schemes?
Saving schemes are financial instruments that have been designed specifically to help people to meet their financial goals within a certain period. These schemes have been introduced by the Indian government, private and public sector banks, and several financial institutions. They determine the interest rate of these saving schemes and keep updating them regularly. With the use of this scheme, one can make significant savings which they can later use for children’s education, emergencies, pursuing higher education, marriage, purchasing a house, paying off debts, etc.
Significance of investing in saving schemes
While individual works and earns every month they must also save a certain amount of money. This is helpful for them as well as the economy. Following are the reasons why saving schemes are significant:
- Safe keeping of money: Keeping liquid money at home is not a safe thing to do. Depositing this money into a saving scheme is advisable as it prevents theft and ensures saving.
- Tax savings: Saving schemes come with several tax benefits ranging from a tax deduction to exemption and in some cases both. With some schemes up to Rs. 1.5 lakh is exempted under Income-tax Act Section 80C. Some also offer benefits on the accrued interest, maturity amount, and investment.
- Retirement funds: Saving schemes with long-term tenure are great for those looking to build a retirement corpus. When invested from an early age, one can enjoy the rewards with a huge corpus that will secure them financially.
- Helps avoid extra expenses: Availability of surplus money can sometimes lead to extra expenses. The downside of this is in case the money is needed in the future for something emergency, people lack the fund. To avoid this, saving schemes are the best option.
6 saving schemes to know about for financial security
Several schemes are available in the market. Some have been backed and recognized by the government and some of them have been regulated by SEBI and RBI. In addition to an assurance of saving, it also provides tax exceptions. Following are some of the schemes:
- Equity-Linked Savings Scheme (ELSS): ELSS is a kind of mutual fund that also offers a tax deduction of Rs 1.5 lakh under Income-tax Act Section 80C. It comes with three-year lock-in period. The returns are taxable with an exemption of Rs 1 lakh. The amount beyond this is 10% taxable.
- Fixed Deposits (FD): FDs are the safest and the easiest investment option It comes with a term tenure flexibility with a regular interest payout. The interest rate one receives through FD is significantly higher than what is offered in a saving account. In case someone requires the money before the completion of the tenure, they can break the FD and take an overdraft loan. The interesting one received at the end of the tenure can also be reinvested. The interest amount is taxable for payments that exceed Rs. 40,000.
- United Linked Insurance Plan (ULIP): ULIP meaning, it is an insurance plan that comes with the dual benefit of meeting long-term financial goals as well as gives the provision of investment. Through this, long-term goals like planning retirement, funding education, marriage, or financing a dream house can be met. Based on an individual’s risk appetite, money can be invested in debt funds and equity.
- Public Provident Funds (PPF): This tax-free scheme has backed by the Government of India that comes under the Income-tax Act Section, 80C. Its account can be either opened in a post office or a bank. PPF has a lock period of 15 years which can also be extended into 5 years block. Return is calculated at 7.1% per annum based on compound interest.
- National Savings Certificate (NSC): Yet another scheme backed by the government, it offers an assured return with the option of tax saving. Investment can be made in NSC in a post office with a lock period of 5 years. Under 80C tax deduction can be enjoyed up to Rs. 1.5 lakh. Once the amount matures, one can choose to reinvest the interest amount which would also be eligible for a tax deduction.
- Voluntary Provident Fund (VPF): For people who receive a regular salary, VPF is a fantastic saving scheme, Individuals have the option to invest their basic salary 100%. In addition, they can also invest their dearness allowance, above the 12% contribution made to the Employee Provident Fund (EPF). The interest rate comes at a rate of 8.5%.