Fixed Deposits (FD)
Tax-saving FDs can avail the tax relief provided under Section 80C. FDs provide the investor with a fixed rate of interest on deposits and are therefore considered safe and stable investments.
- Tax-saving FDs come with a lock-in period of 5 years. 2 years longer than the shortest lock-in provided with ELSS.
- Tax-saving FDs can be invested through any public and private sector bank except for co-operative and rural banks.
- Post-office FDs can be transferred between post offices.
- Nomination facility is available on these FDs.
- Tax-saving FDs can be held by an individual or jointly.
- Loans are not allowed against these FDs.
- Investment in tax-saving FDs up to Rs. 1.5 lakhs are deductible from the investor’s taxable income.
- Returns on FDs are fully taxable. Minimum Investment amount in Rs 1000.
- FDs across banks provide returns between 5.5% and 7.5%, lower than the historical returns of ELSS.
Public Provident Fund (PPF)
The PPF was introduced in 1968 by the National Savings Organization to promote small savings and investments. This scheme provides investors with the dual benefit of savings and stable returns.
- PPFs have a lock-in period of 15 years, but partial withdrawals are allowed after 7 years. The fund can also be extended in 5-year increments.
- Maximum investment limit in PPF is Rs. 1.5 lakhs and the minimum is Rs 500.
- Non-resident Indians (NRIs), Hindu Undivided Family (HUF) and a Body of Individuals (BoI) cannot apply for PPF.
- PPFs offer partial liquidity through loans. Loans on PPF carry an interest rate 2% higher than the interest earned through the scheme.
- The PPF cannot be attached by a person to pay off any debt or liability.
- A person can nominate a minor to the account.
- PPFs provide a deduction of up to Rs. 1.5 lakhs on the taxable income of the investor under Section 80C of the Income Tax Act.
- Currently, the PPF interest rate is at 8%. Returns earned are tax-free.
Employee Provident Fund (EPF)
The EPF is a savings fund created for salaried employees. The employer deducts 12% from the basic salary+DA of the employee and contributes it towards the EPF or other recognized provident funds.
- An employee can withdraw the EPF 2 months after leaving the organization and not being employed by another employer covered under the PF act.
- An employee can make a voluntary contribution towards the EPF. A voluntary contribution is called a Voluntary Provident Fund (VPF).
- Interest of EPF is calculated on the basis of the monthly running balance.
- The entire balance in the EPF is tax-free if withdrawn after 5 years of continuous service.
- EPF provides a rate of return of 8.55% per annum.
National Pension Scheme (NPS)
The NPS is a pension scheme started by the Government of India for the working sector to provide workers with a pension after retirement. Contributions up to Rs. 1.5 lakhs are deductible from the contributor’s taxable income under Section 80C.
- The NPS is withdrawable only post-retirement. Partial withdrawals are allowed after 15 years under special conditions.
- There is no upper limit to investment in NPS.
- NPS carry an interest rate between 12% - 14%.
- An individual cannot hold multiple NPS accounts.
- The minimum contribution towards an NPS account is Rs. 6,000.
- The investor must use 80% of the corpus in an NPS to buy annuity.
Unit Linked Insurance Plans (ULIP)
ULIPs invest part of the investment in insurance and the remainder in equity. Investments of up to Rs. 1.5 lakhs are deductible from the investor’s taxable income under Section 80C.
- There is not maximum contribution one can make towards ULIP.
- The amount received at maturity is tax exempt under Section 10(10D).
- ULIPs provide investors rate of returns between 12% to 14%.
- Subject to certain conditions, the premium paid towards ULIPs are deductible under Section 80C.
- ULIPs allow individuals to invest excess cash through top-ups. The top-ups may be eligible for deduction under Section 80C as well as exemption under Section 10 (10D) provided the condition that the premium does not exceed 10% of the sum assured is not violated.
Sukanya Samriddhi Yojana (SSY)
The Sukanya Samriddhi Yojana is a saving scheme targeted at to help the girl child in India. The scheme aims to form a saving for girl child education and marriage.
- Contributions up to Rs. 1.5 lakhs towards SSY are deductible from the taxable income of the contributor.
- The returns on SSY are compounding and tax-exempt at the time of maturity.
- Once the girl attains the age of 18 years 50% of the fund may be prematurely withdrawn for the purpose of education or marriage. The fund reaches maturity 21 years from the date it was opened.
- The interest rate offered on SSY is 8.5% per annum.
- SSY can be opened through any post office or authorized office of commercial paper.
- The account depositor may open only one account in the name of the girl child.