Small Savings Instruments | 25 Apr 2023

Why in News?

Despite successive hikes in interest rates on several small savings instruments (SSIs) in the last three quarters, the returns on some of such schemes are still significantly lower than what they should have fetched (as per calculations released by the Reserve Bank of India (RBI)).

What are Small Savings Instruments?

  • About:
    • Small savings instruments help individuals achieve their financial goals over a particular period.
    • They are the major source of household savings in India.
    • Collections from all small savings instruments are credited to the National Small Savings Fund (NSSF).
  • Classification:
    • The small savings instrument basket comprises 12 instruments which can be classified into three categories:
      • Postal Deposits: (comprising savings account, recurring deposits, time deposits of varying maturities and monthly income scheme).
      • Savings Certificates: National Small Savings Certificate (NSC) and Kisan Vikas Patra (KVP).
      • Social Security Schemes: Sukanya Samriddhi Scheme, Public Provident Fund (PPF) and Senior Citizens 'Savings Scheme (SCSS).
  • Rates of Small Saving Instruments:
    • The rates for small saving instruments are announced quarterly.
    • Theoretically, it is based on yields of G-Secs of corresponding maturity but political factors also influence the rate change.
    • The Shyamala Gopinath panel (2010) constituted on the Small Saving (SS) Scheme had suggested a market-linked interest rate system for SS Schemes.
  • Formula for Small Savings Rates:
    • It is used to calculate the interest rates for various SSIs in India and is based on the average quarterly yields on G-Secs in the first 3 of the preceding 4 months.
      • The formula is used to decide how much interest to pay to savers who invest in SS schemes.

What are the Few Important Small Savings Schemes?

  • Sukanya Samriddhi Account Scheme:
    • Aims to promote the welfare of girl children in India.
    • Parents or legal guardians can open deposits for up to two daughters aged below 10, and in the case of twin girls or three girl children, the scheme allows three accounts to be opened.
    • Minimum initial deposit - Rs 250; Maximum annual ceiling - Rs 150,000.
    • Deposits can be made for a maximum of 15 years; account matures on completion of 21 years from the date of opening or on the marriage of the account holder, whichever is earlier.
  • Senior Citizens’ Savings Scheme:
    • To provide senior citizens in the country a regular source of income after they turn 60 years old.
    • Eligibility -
      • Indian citizens above 60 years of age
      • Retirees in the age of 55-60 years who have opted for a Voluntary Retirement Scheme (VRS) or Superannuation
      • Retired defense personnel between 50-60 years of age.
    • Maturity period of five years, which can be extended for another three years.
    • Minimum deposit - Rs. 1,000; Maximum deposit limit increased to Rs. 30 lakhs in the Union Budget 2023-24.
    • Premature withdrawal is allowed after one year of opening the account.
    • Deposits in SCSS also qualify for deduction under Section 80-C of the Income Tax Act.
  • Monthly Income Scheme:
    • Allows monthly investments by Indian residents above the age of 10 years. 1-3 individuals can hold the account jointly.
    • Has a 5-year lock-in period with premature withdrawal allowed after one year with a penalty.
    • Maximum deposit limit enhanced in Union Budget 23-24 to Rs 9 lakh (for single account) and Rs 15 lakh (for joint account).
      • Any income from the scheme is not subject to TDS or tax deductions.
    • NRIs not eligible to invest in this scheme.
    • Account is transferable from one post office to another.
  • Public Provident Fund (PPF):
    • Encourages individuals to save for their retirement.
    • Has a tenure of 15 years, extendable to an additional 5 years after maturity.
    • Minimum annual investment required to keep a PPF account active - Rs. 500; Maximum investment limit - Rs. 1.5 lakh per FY.
  • Kisan Vikas Patra (KVP):
    • Governed by the Government Savings Certificates Act 1959 (an SSI offered by India Post).
    • Originally launched in 1988 and relaunched in 2014.
    • Available to resident Indians and trusts.
    • Tenure - 124 months, but not fixed.
    • Minimum investment amount - Rs. 1,000; No upper limit.
    • Interest rate reviewed by the government every quarter.
  • Mahlia Samman Savings Certificate:
    • A one-time new small savings scheme for women or girls
    • Available for a two-year period up to March 2025
    • Deposit facility up to Rs 2 lakh (fixed interest rate of 7.5%)
    • Partial withdrawal option

Source: TH


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