Government Investment schemes: From PPF to Senior Citizen Scheme to keep your savings 100% safe

Government Investment Schemes: If you want to move to safer havens and invest in fixed income assets, here are a few government investment schemes that come with 100 per cent safety of principal invested and the income earned.

1. Tax-free bonds – 

• They are issued primarily by government-backed institutions such as Indian Railway Finance Corporation Ltd (IRFC), Power Finance Corporation Ltd (PFC), National Highways Authority of India (NHAI), Housing and Urban Development Corporation Ltd (HUDCO), Rural Electrification Corporation Ltd (REC), NTPC Ltd and Indian Renewable Energy Development Agency, and most carry the highest safety ratings.
• Tax-free bonds are long-term investments with tenure of 10, 15, 20 years. The liquidity, however, is low in tax-free bonds and therefore, invest in them only if you are sure that you will not require the funds for such a long period. The interest is tax-free and there is no Tax Deducted at Source (TDS) too.
• They usually offer annual and not monthly interest payouts hence may not meet a retiree’s regular income requirement. If held till maturity, the safety of principal and interest exists. Currently, the YTM (Yield to maturity) is around 5.9 per cent ( coupon ate is upwards 8 per cent) in tax-free bonds as currently the interest rate is headed downwards.

2. Public Provident Fund (PPF) –

• PPF is a long term investment and requires a regular contribution to be paid for 15 years. One may, however, exit after 5 years ( subject to conditions), avail a loan from 4th year and make partial withdrawals after 7th year.
• As per the rules, one is allowed to open only one account in own name while another can be opened in a minor child’s name. A minimum of Rs 500 and maximum of Rs 1.5 lakh ( self plus minor account) in each financial year can be put into the PPF scheme. While the investment qualifies for tax benefit under Section 80C, the interest earned is tax-exempt.
• Post maturity, the PPF account can be extended indefinitely in a block of five years. Currently, ( July 1 to September 30, 2019) the PPF account carries an interest rate of 7.9 per cent per cent per annum, compounded annually and is paid on maturity.

3. Senior Citizen Savings Scheme (SCSS) – 

• SCSS is a popular investment option for those who are 60 years and above. An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under VRS can also open account subject to the condition that the account is opened within one month of receipt of retirement benefits and the amount should not exceed the amount of retirement benefits.
• SCSS is for a period of 5 year and more than one account may be opened, but the combined limit is capped at Rs 15 lakh. Interest earned is fully taxable and to be added to one’s ‘Income from other sources’. SCSS suits senior citizens looking for high fixed rate of return and a regular income.
• After maturity, the account can be extended for further three years within one year of the maturity by giving application in a prescribed format. In such cases, the account can be closed at any time after expiry of one year of extension without any deduction. Currently, (July 1 to September 30, 2019) the interest rate on SCSS is 8.6 per cent per cent per annum, payable quarterly.

4. Savings (Taxable) Bonds, 2018 – 

• One may invest in the Government of India 7.75 per cent Savings (Taxable) Bonds that have a tenure of 7 years.
• There will be no maximum limit for investment in the Bonds and the interest income will either be paid half-yearly or on maturity.
• In the latter case, the maturity value of the Bonds shall be Rs 1,703.00 (being principal and interest) for every Rs 1,000 invested.

5. Post Office Time Deposit Account (TD) – 

• The time deposit (TD) in a post office is somewhat similar to a bank fixed deposit. While the time deposits in a post office are for 1, 2 , 3 and 5 years, its only the 5-year TD that comes with section 80C tax benefit.
• There is no maximum limit but tax benefit is restricted to Rs 1.5 lakh each year. Interest earned is fully taxable and to be added to one’s ‘Income from other sources’. There’s only the annual interest option as it does not allow monthly or cumulative option.
• In post offices with core-banking, when any TD account is matured, the same TD account will be automatically renewed for the period for which the account was initially opened. Currently, (July 1 to September 30, 2019) the interest rate on 5 year TD is 7.7 percent per annum, payable annually but calculated quarterly. Even the 1, 2 and 3 year Time Deposit is offering a competitive return of 6.9 percent as compared to bank FDs.