Submitted to: Dr.Rajinder Kaur

Submitted by: Pallavi Agarwal




The small saving schemes in India are framed by the Central Government under the Government Savings Bank Act 1873, Government Savings Certificates Act 1959 and The Public Provident Fund Act 1968. Small saving schemes are meant for to mobilize the savings from the small investors as they carry attractive interest rates, sovereign guarantee and tax benefits. All these schemes carry interest rates administered by the Central Government. An attractive feature of small saving schemes is favourable tax treatment. While contributions to certain schemes carry tax concessions, returns on almost all schemes have some taxexemptions. The high safety levels coupled with the attractive returns make small savings schemes a 'must- have' option for most investors.

Types of Small Saving Schemes
All small saving schemes tend to be characterized as the same despite the fact that they vary on parameters including tenure, returns and liquidity. In light of this aspect we profile some of the popular schemes and determine in whose portfolio they find place. Here is a rundown on some popular small saving schemes which are available to investors:Public Provident Fund National Saving Certificate Kisan Vikas Patra Post Office Monthly Income Scheme Post Office Time Deposits Senior Citizen Saving Scheme Year Recurring Deposit Schemes

Public Provident Fund

The PPF ranks as one of the most attractive schemes within the gamut of small savings. It presently offers a return of 8% pa and runs over a 15-Yr period. The scheme promotes regular savings by ensuring that contributions are made every year to keep the account active; these contributions can vary from Rs 500 to Rs 70,000 pa. PPF doesn't score too well in case of liquidity. Withdrawals are permitted only after the expiry of 5 years from the end of the financial year in which the first deposit was made. Investors are entitled to claim tax-benefits under Section 88 for deposits made up to Rs 70,000 pa in the PPF account. Also the interest is exempt from tax under Section 10 of the Income Tax Act.


All the balance that accumulates over time is exempt from wealth tax. The interest rate keeps changing. This rate of interest is fixed by the government and there is nothing you can do about it. Interest is calculated on the lowest balance between the fifth and the last day of the month.

Anyone can open a PPF account, either on his/her own behalf or on behalf of a minor.
You can open a PPF account at any branch of the State Bank of India. You can also open an account in any head/selected grade post office or a General Post Office.


You can make withdrawals within specified limits. The first withdrawal can be made from the seventh year. You don't have to wait to withdraw from your PPF account to get some money from it, you can get a loan on your PPF from the third year.

National Saving Certificates

NSC is another attractive instrument offering a return of 8% pa. Investors are required to make a single deposit and the interest component is returned along with the principal amount on maturity i.e. 6 years. Premature encashment of certificate is allowed under specific circumstances only, such as death of the holder(s), forfeiture by the pledgee or under court's order. Investments in NSC enjoy tax-benefits under Section 88 of the Income Tax Act. The interest is entitled for exemption under section 80L of the Income Tax Act upto a maximum limit of Rs 12,000. Only individuals and Trusts can purchase the certificates. An adult can also purchase certificate in the name of the minor under guardianship.

certificates can be purchased for any amount, as there is no upper limit on investment.
The NSCs


are transferable instruments but after one year of holding them. can be pledged as security against a loan to banks/ Govt.



Maturity proceeds not drawn are eligible to Post Office Savings account interest for a maximum period of two years.

Kisan Vikas Patra

The scheme runs over a tenure of 8 years and 7 months and doubles the amount invested. This makes the return one of the most attractive one amongst its peers. Investors are permitted to liquidate their investments in KVP any time after 2.5 years from the investment date. However a loss of interest has to be borne. Investments in KVP don't offer any tax benefits. The interest on investments is fully taxable as well. Only individuals and Trusts can purchase the certificates. . An adult can also purchase certificate in the name of the minor under guardianship.


Nomination can be done at the time of making the investment or anytime thereafter.
After the expiry of the term, the certificates can be encashed from any post office other than the office of issuance also. The certificates can be purchased for any amount, as there is no upper limit on investment. The denomination available is of Rs 100, 500, 1,000, 5,000, 10,000 and 50,000.

Post Office Monthly Income Scheme

This scheme provides monthly income (at 8% pa) to investors. On completion of 6 years, a 5% bonus on the principal sum is provided w.e.f. 08-12-2007. POMIS offers investors an exit option after 1 year from the investment date. However, an exit after 1 year would also entail a loss of 2% of the amount invested and after three years 1% of the amount invested. The interest on investments as well as bonus received on maturity qualifies for tax benefits under Section 80L of the Income Tax Act.


Account can be opened by an individual,two/three adults jointly and a minor through a guardian.

Nomination can be done at the time of making or anytime thereafter.
Monthly interest can be credited to the savings bank account in the same post office. The minimum investment for a single and joint account is Rs 1500, while the maximum limit is Rs 4,50,000 for a single account and Rs 9,00,000 for a joint account.

Post Office Time Deposit

These deposits are available for periods ranging from 1 year to 5 years with the interest rates varying correspondingly. Interest payments are made annually. Duration and varying interest rates are as follows: One year  6.25% Two year  6.50% Three year 7.25% Five year  7.50% POTD scores favourably on the liquidity front. Investors can exercise the exit option within 6 months without receiving any interest (1-Yr lock-in for exit with interest receipt but 2% less). Interest on POTD is eligible for tax benefits under Section 80L of the Income Tax Act.


The minimum investment can be of Rs. 200 while there is no limit on the maximum investment. Account can be opened by an individual, two individuals jointly or by a guardian on behalf of a minor or a person of unsound mind.

The scheme has been reserved for citizens above 60 years of age, also citizens above 55 years can invest in the same subject to certain conditions being fulfilled. SCSS offers a return of 9% pa, making it a must have proposition for the target audience. The minimum and maximum investment amounts are Rs 1,000 and Rs 1,500,000 respectively. The liquidity aspect has been adequately addressed; interest payouts are made on a quarterly basis i.e. on March 31, June 30, September 30 and December 31, every year.

Senior Citizen Saving Scheme

The scheme is for 5 years and can be extended for a further period of 3 years.


Premature withdrawals are permitted after the expiry of 1 year from the date of opening of the account.
Investments in SCSS are eligible for tax benefits under Section 80C. The interest income is chargeable to tax .

Joint account can be opened with spouse.

Recurring Deposit Scheme

The tenure is five years and the investor has to make 60 monthly deposits. The amount with which the account is opened cannot be changed over the years. The interest earned would qualify for tax exemption under section 80 L. Any individual or up to 2 adults jointly can open the account. One can open such account in the name of a minor also whose age is above 10 years. One can withdraw up to 50 per cent of the deposits made in the account, provided the account has been operational for a minimum period of one year. Only one such withdrawal is allowed during the tenure of the account.


If there are more than five defaults, the account shall be treated as discontinued. Revival of the account shall be permitted only within a period of six months from the month of sixth default.

Post Office Saving Bank Deposits
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The interest rate applicable to savings account is 3.5 per cent per annum. The interest accrues yearly and is tax free under section 10(15)(1). An adult individual can open as many accounts. The savings account can also be in the name of a minor if he has attained an age of 10 years. If the account is held as a single account, the maximum amount including various accounts in different offices is Rs 50,000. If the account is a joint one, the maximum would be Rs 1 lakh divided equally among the joint holders. 

Cheque facility is available and one can even give standing instructions to credit the interest of post office monthly income scheme to the saving account.

Why Its Recommended to Invest In Small Saving Schemes
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Risk Free Investment as Small Savings Schemes are fully secured by GOVT.OF INDIA. Higher rate of interest. While we invest in some Small Savings Scheme (except Savings Bank a/c) we get Lucky Coupon and Win fabulous prizes. Tax on these prizes will be paid by the State Govt. Nomination facility. Amount invested will be utilized for the development of the state. Govt. authorized Small Savings Agents are providing home service to all the depositors of these schemes.

Losing Sheen of Small Savings Scheme
Investment in small saving schemes were quiet badly hit during 2007-08.According to the available figures, fresh mobilization through these schemes dipped 18% in 200708. Interestingly the dip is seen in almost all schemes including NSC,POMIS and among many others.

Scheme wise Analysis of Small Savings

Monthly Income Scheme National Saving Certificate Public Provident Fund Post office Time Deposits Post Office Saving Bank Deposits Post office Recurring Deposits Kisan Vikas Patra

GR (FY2000 to Growth rate in FY2006) FY2007 25 -47 06 13.6 25 13 23 4.5 -28 -18 -11 01 01 -26

With the Global Crisis a Revival is Expected in Investor’s Confidence
These are the mobilization of net deposits and net 2003-04 13381 3968.63 collections during 2004-05 7685 6431.93 different time 2005-06 19728 5594.13 period. The trend of 2006-07 29299 3069.25 rising interest rates 2007-08 37505 -965.98 for banks deposits 2008-09 22772 -763.46 caused severe (In crores) erosion to the base of net collections made under small saving schemes during 2006-08. However, with the declining interest rates offered by the banks, due to the global crisis in the financial sector there is expectation that investors may favour the small schemes again. Year Comm. Banks Small Saving Schemes

Need For Rationalisation
The primary objective of the small savings program was to promote the savings habit, especially among those with limited incomes and savings potential. Over time, the original purpose was lost:Largely because of a failure to calibrate scheme design and administration with changing economic structures.

There is still considerable mismatch between the term structure and yield across small savings schemes. For instance, the 6-year RBI taxable savings bond and the 15-year PPF (with some withdrawals permitted after 5 years) both offer 8% return, whereas the 5-year Senior Citizens Scheme offers 9%.

Upper income groups began to take advantage of small savings instruments. Thus, rather than facilitate savings for those with modest incomes, it has been used for tax planning by higher income groups, and for channeling unaccounted and tax-evaded incomes. As the bulk of net small savings (gross collections less repayments)been transferred to state govt, they began to consider these flows as guaranteed receipts, in the process loosening fiscal discipline . The fiscal concessions extended to small savings add to the effective cost to Government. This is reflected in the high effective return to the savers due to tax concessions. Therefore, as the small saving schemes constitute a major segment of the financial sector, it is important to impart it the necessary flexibility for a healthy growth of financial sector.


Measures For Rationalisation

The time is appropriate for further rationalisation of small savings schemes. Appropriately, the government has initiated the task of rationalising small savings schemes in the following ways:-

bonus offered on maturity in the Monthly Income Scheme was recently reduced from 10% to 5%. requirement of permanent account number should also be extended to small savings. This may help reduce use of unaccounted money in these schemes.
The The

task of collecting funds for small savings schemes is carried out by about half a million licensed agents, This agencybased distribution channel should be strengthened by promoting financial literacy among the agents through more frequent and up-to-date training programs.


The NSI must also give greater impetus to market research to better understand the dynamics of preferences of small savers. This, in turn, should be incorporated in the design of small savings schemes. The objective should be to reduce overall transaction costs, improve professionalism and governance. Therefore, the small saving schemes need rationalisation to provide flexibility in interest rate and suitable calibration of tax incentives so as to integrate these schemes with rest of the financial system. The schemes may continue to be operated as at present, however, the perceived tax advantages of the schemes need to be rationalised

The small saving schemes in force in India carry administered interest rates along with various type of tax incentives. The small saving schemes combines individual profit with national welfare by securing personal as well as national prosperity while at the same time serving as a tool to fight inflation in the developing economy. What is more, it provides the means for the common man to contribute his mite to the development of the country and to the raising of the standard of living.

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