Home/ Money / Personal Finance/  Why you should invest in small savings schemes

The budget gave a big push to small savings schemes: The finance minister proposed to double the deposit limits for Senior Citizen Savings Scheme (SCSS) and Monthly Income Account Scheme (MIS) and also introduced a new small savings scheme—Mahila Samman Savings Certificate.

The maximum deposit limit for SCSS has been raised from 15 lakh to 30 lakh. And that for MIS has been increased from 4.5 lakh to 9 lakh for a single account and from 9 lakh to 15 lakh for a joint account.

For the quarter ending 31 March, the government is offering 8% interest on the SCSS scheme. The interest is paid quarterly under this scheme. However, in the case of MIS, the government is offering 7.1% interest per annum, and this interest is paid monthly. Adhil Shetty, CEO of Bankbazaar.com, said the move will help senior citizens build a strong retirement corpus. SCSS comes with a lock-in period of five years. An investment of 30 lakh at 8% interest will fetch 60,000 every quarter. The government has increased the maximum deposit limit for MIS from 4.5 lakh to 9 lakh for a single account and 9 lakh to 15 lakh for a joint account. So, by putting in 15 lakh in the MIS, investors can get a monthly income of 8,875 at the current 7.1% interest rate.

Any individual who is 60 years of age or above on the opening date of an account or anyone who is 55 years of age and less than 60 years and has retired under Superannuation or VRS can open an SCSS account. One can open the SCSS account individually or jointly with their spouse. Investment under SCSS qualifies for the benefit of section 80C of the Act. Similarly, adult individuals who want to earn a regular income with guaranteed returns at a certain interest rate every month can open an account in the MIS scheme.

If you open an MIS account in the post office, you cannot withdraw from the scheme for a minimum of 1 year from the date of deposit. Suppose the account is closed after one year and before three years from the date of opening the account, the post office will deduct an amount equal to 2% from the principal.

However, if an account is closed after three years and before five years of the date of opening the account, the post office will deduct an amount equal to 1% of the principal.

In the case of the SCSS scheme, the account can be prematurely closed any time. If it is closed before one year of opening the account, no interest will be paid to the investor. So, if any interest is paid in the account prior to this, it will be recovered from the principal. If the account is closed before two years, an amount equal to 1.5% will be deducted from the principal. If the account is closed after two years but before five years, an amount equal to 1% will be deducted from the principal amount.

The budget also proposed a new small savings scheme, Mahila Samman Bachat Patra, for the benefit of women. It will be made available for two years, up to March 2025.

The scheme will offer a deposit facility of up to 2 lakh in the name of women or girls for a tenor of 2 years at a fixed interest rate of 7.5% and will have a partial withdrawal option.

Shetty said, “The return rate is similar to that of a bank fixed deposit rate. The partial withdrawal facility makes liquidity convenient. With the bank savings rate still giving low returns, a 7.5% rate of return is a good rate to lock in at this point. An investment of 2 lakh for two years at 7.5% interest will give you a return of 30,000-32,000, depending on how the interest gets calculated."

Navneet Dubey
Navneet Dubey is a personal finance writer and artist. Over the past decade, he has written feature stories on insurance, financial planning, lending and borrowing.
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Updated: 02 Feb 2023, 05:45 AM IST
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