The government of India has launched several schemes over the years to encourage savings and investment. These schemes offer fixed returns and are considered low-risk. While many investors prefer high returns by taking high risks, there are a majority of investors who still prefer fixed and stable returns. Adding fixed-return investments to your portfolio can help in diversification and offer stability to the portfolio returns. In this article, we have listed 12 popular government schemes that every investor must know.
Public Provident Fund (PPF)
Public Provident Fund (PPF) is a long-term savings scheme launched in 1968. The primary aim of this scheme is to mobilize savings and encourage long-term investing. It pays a fixed interest to the investors, which is decided every quarter by the Ministry of Finance.
Once you start investing in PPF, it is mandatory that you invest at least once every year for the entire duration of the scheme. If you fail to do so, your account will become inactive. The scheme accepts both lump sum amounts or payments made in instalments. Ideally, investing before the 5th of every month is best to earn interest for the entire month.
The scheme doesn’t accept joint holders; hence, you must invest in the scheme individually. However, you can add a nominee to your PPF account. PPF is a long-term investment scheme; hence, your investment is locked in for the entire duration. In case of emergencies, you can withdraw your money partially from the seventh year. You can also take a loan against your PPF between the 3rd and 6th year for a tenure of 36 months, and the maximum amount of the loan is 25% of the available amount.
- Minimum and Maximum Investment Amount: The minimum investment is Rs 500 per annum, and the maximum investment is Rs 1.5 lakhs per annum.
- Interest: The interest is 7.1% per annum for January to March 2024, compounded annually.
- Tenure: The scheme’s tenure is 15 years, which can be extended in blocks of 5 years.
- Frequency of Contribution: You can contribute monthly, half-yearly, or yearly. However, you must invest at least once a year to keep your PPF account active.
- Partial Withdrawal: Partial withdrawal is allowed from 7th year onwards.
- Tax Benefit: The investment, interest and maturity proceeds fall under the exempt, exempt, exempt (EEE) category. Investment up to Rs 1.5 lakhs per annum is exempt under Section 80C of the Income Tax Act. Hence, you need not pay tax at all on your PPF investment.
National Savings Certificate (NSC)
NSC was launched to encourage small savings among small- and middle-income investors. The scheme pays a fixed interest to its investors, and the interest rate is decided by the Ministry of Finance every quarter. The interest is paid every year and gets automatically reinvested for four years.
To be eligible to invest in NSC, you must be a citizen of India. The scheme allows you to invest individually or jointly or on behalf of a minor. You can invest in NSC only through post offices and transfer it from one post office to another without losing the accumulated savings.
You can also transfer it to someone else once during your investment tenure. The scheme also allows you to nominate someone who will receive the investment proceeds if an unfortunate event leads to your absence.
The investment in NSC is locked in for the entire duration; hence, you cannot withdraw the amount until maturity. However, you can take a loan against it at all major banks and Non-Banking Financial Companies (NBFC).
- Minimum and Maximum Investment Amount: The minimum investment is Rs 100, and there is no limit on the maximum investment.
- Interest: The interest is 7.7% per annum for January to March 2024, compounded annually.
- Tenure: The tenure of the scheme is five years.
- Frequency of Contribution: NSC is like a fixed deposit (FD), and you can invest only once. However, you can invest in multiple certificates.
- Partial Withdrawal: Partial or premature withdrawal is not allowed. The government allows it only upon the account holder’s death or if you have a court order.
- Tax Benefit: The investment in NSC is exempt from tax under Section 80C of the Income Tax Act, 1961, with a maximum exemption of Rs 1.5 lakhs per annum. The interest and maturity proceeds are taxable as per your income tax slab.
Sukanya Samriddhi Yojana (SSY)
SSY is a government scheme launched with the aim to improve the life of a girl child in 2015. It is regulated jointly by the Ministry of Women and Child Development, the Ministry of Human Resource Development, and the Ministry of Health and Family Welfare.
Only parents and legal guardians of a girl child can invest in this scheme. The scheme allows only one account per girl child and a maximum of two per family. The minimum entry age is right after the child is born, and the maximum is ten years. You can invest in this scheme until the girl child turns 15 years old and earn a fixed interest on the investment. The scheme matures after the child turns 21.
You can invest in SSY at any post office or authorized bank. To invest, you need to submit an application form, the birth certificate of the child, and your identity and address proof.
- Minimum and Maximum Investment Amount: The minimum investment is Rs 250, and the maximum investment is Rs 1.5 lakhs per annum.
- Interest: The interest is 8.2% per annum for January to March 2024, compounded annually.
- Tenure: The scheme matures when the girl child turns 21.
- Frequency of Contribution: You can invest in lumpsum once a year or make smaller contributions multiple times a year.
- Partial Withdrawal: Partial withdrawal up to 50% is allowed when the girl child turns 18. Premature withdrawal is allowed in case the child is suffering from terminal illness or in case of her death.
- Tax Benefit: The investment, interest and maturity proceeds are entirely tax-free as the scheme falls under the EEE category. Investment up to Rs 1.5 lakhs per annum is exempt under Section 80C of the Income Tax Act.
National Pension Scheme (NPS)
NPS is a retirement scheme that aims to promote long-term savings. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and the Government of India.
The investors of the scheme are called subscribers and can invest in the scheme between the ages of 18 and 60 years. As a subscriber, you must contribute to the scheme every year until the age of 60 to enjoy a regular pension for a lifetime.
To invest in the scheme, you must be an Indian citizen. Therefore, both residents and non-residents (NRIs) can invest in this scheme. To invest in this scheme, you can approach an entity called Point of Presence (POP). POPs are all public and private banks authorised to accept NPS subscriptions. Once you submit an application form and the necessary documents, you must make your first subscription. You will then be allotted a unique 12-digit number known as Permanent Retirement Account Number (PRAN), which will be useful to access your NPS account and make contributions.
There are two kinds of NPS accounts: Tier 1 and Tier 2. A Tier 1 account is a mandatory account, and a Tier 2 account is a voluntary account. The major difference between the two is that the former has restrictions on withdrawing money, and the latter has no such restrictions.
The scheme invests your money in market-linked securities, which pension fund managers manage. So, when you invest, you must select a pension fund manager who will invest your money in market securities. When you turn 60, the scheme matures, and you can withdraw up to 60% of the maturity proceeds. The remaining 40% will be used to buy an annuity plan, which will pay you a regular pension throughout your life. You can also defer your withdrawal until you turn 70.
- Minimum and Maximum Investment Amount: The minimum investment is Rs 6,000 per annum, and there is no limit on the maximum investment amount. Your account will freeze if you fail to pay the minimum investment every year.
- Tenure: The scheme matures when you turn 60.
- Frequency of Contribution: You must invest the minimum investment amount in NPS once a year to keep your account active. You can also invest in smaller instalments throughout the year.
- Partial Withdrawal: Partial withdrawal of up to 25% of the contribution made is allowed for a maximum of three times during the entire tenure of your investment.
- Premature Withdrawal: You can prematurely withdraw from your NPS account. However, there are certain rules to it. You can exit the scheme only after investing in it for ten years. If the total amount of contribution is below Rs 1 lakh, then you can withdraw the entire amount without tax. However, if the contribution is above Rs 1 lakh, then you can withdraw only 20% of the corpus, and the remaining 80% must be used to purchase an annuity plan.
- Tax Benefit: The investment in NPS qualifies for tax deduction under Section 80C and 80CCD. A maximum of Rs 1.5 lakhs is allowed under Section 80C, and Rs 50,000 is allowed under Section 80CCD. The 60%, which can be withdrawn upon maturity, is tax-free. The remaining 40%, which is used to buy an annuity plan, is taxable as per your income tax slab when you receive the income on a monthly or yearly basis.
Sovereign Gold Bonds (SGB)
SGB are an alternative to physical gold. Owing to the widespread popularity of gold, the government introduced SGBs in 2015. The Reserve Bank of India (RBI) issues them against grams of gold. By investing in SGBs, you can benefit from capital appreciation in the price of gold and also earn a fixed return.
The RBI issues SGBs in tranches and announces the subscription period, issue date and price. You can subscribe to the issue during the given period, and the confirmation will be sent to you on the issue date. If you get the allotment, the SGBs will be reflected in your demat account.
The SGBs pay a fixed interest, which will be credited to your bank account semi-annually. Although the scheme has a lock-in period of 5 years and a tenure of eight years, you can sell them in the secondary market at the current price of gold.
Unlike other forms of digital gold, SGBs are not backed by physical gold. However, they are backed by the guarantee from RBI to honour the gold price on redemption. Hence, upon maturity, the RBI will repay the proceeds at the current price of gold.
- Minimum and Maximum Investment Amount: The minimum investment is one gram, and the maximum investment is 4 kgs.
- Tenure: SGBs have a tenure of eight years.
- Premature Withdrawal: You can prematurely redeem your investment after five years. However, if you want to sell your investment, you can do so on the secondary market at the current price of gold.
- Loan: You can take a loan against SGBs from authorised banks. RBI will dictate the terms of the loan, including loan-to-value ratio, interest rate, and tenure.
- Tax Benefit: The investment in SGBs is taxable and doesn’t qualify for tax benefits. The interest is also taxable as per your income tax slab. The maturity proceeds (capital gains) are not taxable if you hold them until maturity. However, if you sell them before eight years but after the lock-in period of five years, the capital gains are taxable as per existing rules.
Senior Citizen Savings Scheme (SCSS)
SCSS is a savings scheme for senior citizens launched to ensure a regular source of income for senior citizens. The scheme allows senior citizens to invest in lumpsum either individually or jointly. It pays interest regularly, which is a source of regular income for the subscribers.
Only authorized banks can accept subscriptions for SCSS from eligible investors. As a subscriber, you can open multiple SCSS accounts. However, the investment in all accounts combined shouldn’t be higher than Rs 30 lakhs. The entry age of the scheme is 60 or above. In case of early retirement, the scheme accepts deposits from subscribers aged 55 and 50 in case of defence personnel.
The interest payments are made quarterly on the 1st of April, July, October, and January. The Ministry of Finance decides the rate of interest every quarter.
- Minimum and Maximum Investment Amount: The minimum investment is Rs 1,000, and the maximum investment is Rs 30 lakhs.
- Tenure: The tenure of 5 years can be extended for another three years if the application for extension is given in the fourth year.
- Premature Withdrawal: Premature withdrawals are allowed with certain conditions. If you withdraw within one year of account opening, then no penalty is levied. If you withdraw after one year and within two years, then 1.5% will be deducted from the principal amount, and 1% will be deducted if you withdraw after two years.
- Tax Benefit: The investment in SCSS qualifies for tax benefits under Section 80C of the Income Tax Act, 1961. The interest and maturity proceeds are taxable as per the investor’s income tax slab rate.
Atal Pension Yojana (APY)
APY was introduced by the Government of India in 2015. The scheme aims to provide social security to the unorganised sector. It is administered by the Pension Funds Regulatory Authority of India (PFRDA) and is a voluntary pension scheme that allows individuals aged 18 to 40 to join. You must contribute for at least 20 years and continue until you reach 60; upon retirement, you are eligible to receive a guaranteed monthly pension. You can receive pension amounts ranging from INR 1,000 to INR 5,000. However, the amount depends on the contributions made.
- Minimum and Maximum Investment Amount: The minimum and maximum amount will depend on your age and pension plan.
- Tenure: Depends on at what age you start investing. A minimum of 20 years’ contribution is necessary.
- Frequency of Contribution: Monthly, quarterly or half-yearly
- Premature Withdrawal: No allowed; however, in case of death or illness, you can prematurely withdraw the corpus.
- Pension for Spouse: The spouse will be eligible for pension in case of the contributor’s death.
- Tax Benefit: Investment up to INR 1.5 lakhs is eligible for tax deduction under Section 80CCD of the Income Tax Act 1961. An additional exemption under Section 80CCD (1B) for INR 50,000 is available.
Pradhan Mantri Jan Dhan Yojana (PMJDY)
Launched in 2014, PMJDY is a National Mission focused on achieving financial inclusion for the citizens of India. The primary goal is to provide universal access to banking facilities, ensuring that every household has at least one basic banking account. The scheme also emphasizes promoting financial literacy and facilitating access to credit, insurance, and pension. Its core aim is to reach individuals who are currently outside the scope of other small savings schemes or banking services.
- Minimum Balance: Zero
- Interest Rate: 4% p.a.
- Accidental Insurance: Up to INR 2 lakhs
Kisan Vikas Patra (KVP)
Introduced in 1988, KVP is a post office savings scheme initially designed for farmers but is now open to all Indian citizens. The scheme is an excellent savings option for those who want to conveniently invest in fixed-income instruments with no risk.
KVP has three types of accounts:
Single Holder Type Account: Only individuals above 18 years old can open this account. If you are a major, you can operate the account on behalf of a minor and person of unsound mind as a guardian.
Joint A Type Account: This account is jointly opened by up to three adults, and the maturity amount is payable to all account holders jointly or to the survivors.
Joint B Type Account: Similar to Joint Type-A, this account allows the maturity amount to be payable to any account holder or survivor.
- Minimum and Maximum Deposit Amount: Minimum deposit of INR 1,000 and in multiples of INR 100 thereafter. No limit on the maximum amount.
- Tenure: 10 years, lock-in period of 30 months.
- Interest Rate: 7.5% p.a. for January to March 2024
- Tax Benefit: No tax exemption available.
Post Office Time Deposit Account (POTD)
POTD is a popular post office savings scheme that is similar to a bank fixed deposit. The scheme has a fixed tenure and pays fixed interest. The interest rates are revised every quarter. You can invest in the scheme individually or jointly.
With POTD, you can either withdraw the interest or reinvest it into the scheme. Also, you can redirect the interest component towards a five-year post office recurring deposit scheme.
- Minimum and Maximum Deposit Amount: INR 1,000, with no limit on the maximum amount.
- Tenure: 1, 2, 3 and 5 years.
- Interest Rate: 6.9% to 7.5% p.a. for January to March 2024
- Premature Withdrawals: The scheme has a lock-in period for the tenure chosen. However, premature withdrawals are allowed and attract penalties (typically lower interest rates by 1%).
- Tax Benefit: 5-year POTD schemes qualify for tax exemption under Section 80C of the Income Tax Act, 1961. Investments up to INR 1.5 lakhs are tax exempted.
Post Office Monthly Income Scheme (POMIS)
Regulated by the Department of Post (DOP), the POMIS is a monthly savings plan overseen by the Central Government of India. The scheme aims at providing a stable monthly income. It is a low-risk option that guarantees regular income.
You can redirect the interest from this scheme to the Post Office Recurring Deposit Scheme or reinvest in the same scheme for compounding returns. Upon maturity, you have the option to either withdraw your investment or extend it for an additional five years to continue accruing interest.
- Minimum and Maximum Deposit Amount: INR 1,000 and in multiples of it thereafter. The maximum limit for single holding is INR 9 lakhs, and for joint holding is INR 15 lakhs.
- Tenure: 5 years
- Interest Rate: 7.40% p.a. for January to March 2024
- Premature Withdrawals: You can withdraw after one year. However, premature withdrawals attract a fee. For withdrawals within 3 years, a 2% fee is applicable. For withdrawals after 3 years, a 1% fee is applicable.
- Tax Benefit: No tax exemption available.
Mahila Samman Saving Certificate Scheme (MSSCS)
Introduced in the Budget 2023, MSSC is a newly launched small savings scheme aimed at encouraging women’s investments. It operates as a single-holder account and can be initiated at any Post Office or registered bank. It is a one-time scheme that has a tenure of 2 years and is exclusively designed for women. Women can open the account for themselves, and guardians can open it on behalf of a minor girl. The account must be initiated on or before March 31, 2025.
- Minimum and Maximum Investment Amount: INR 1,000 and in multiples of INR 100 thereafter. The maximum limit is INR 2,00,000.
- Tenure: 2 years
- Interest Rate: 7.50% p.a., payable upon maturity for January to March 2024.
- Premature Withdrawals: No withdrawals are allowed; however, they are allowed under special conditions. You can partially withdraw 40% of the corpus after 1 year from the date of account opening.
Conclusion
Government schemes are low-risk and offer guaranteed returns. They best suit individuals with a low-risk tolerance and who want to save on taxes. However, it doesn’t mean investors with high-risk appetites shouldn’t invest in them. All investors must consider investing in government schemes to take advantage of the tax benefits and fixed returns they offer.
Frequently Asked Questions (FAQs)
Which Government investment scheme gives the highest return?
As of December 2023, Senior Citizen Savings Scheme (SCSS) offers the highest interest (8.20%) among all the government schemes. However, this is a scheme for senior citizens only. On the other hand, Sukanya Samriddhi Yojana (SSY) offer 8% interest, which can be opened only for a girl child.
Which government scheme offers more interest than FD?
The Senior Citizen Savings Scheme (SCSS), National Savings Certificate (NSC), Sukanya Samriddhi Yojana (SSY), and Kisan Vikas Patrika (KVP) all give higher returns than a fixed deposit (FD).
Which government scheme is best for investment?
The government offers a variety of risk-free investment schemes tailored to different purposes. Depending on your individual investment goals, you can choose the scheme that aligns best with your needs.
Do all government schemes qualify for tax exemption?
Not all government schemes qualify for tax exemptions. Thus, if you are looking for tax savings, pick the schemes that offer exemptions.
