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Submitted to: Submitted
Dr.Rajinder Kaur by:







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 tax-

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

NSCs are transferable instruments but after one year of holding them.

Certificate 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

 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

 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.
Senior Citizen Saving Scheme
 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.
 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
 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
 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 2007-

Interestingly the dip is seen
in almost all schemes
including NSC,POMIS and
among many others.
Scheme wise Analysis of Small Savings
Scheme GR (FY2000 to Growth rate in
FY2006) FY2007
Monthly Income Scheme 25 -47
National Saving Certificate 06 -28

Public Provident Fund 13.6 -18
Post office Time Deposits 25 -11
Post Office Saving Bank 13 01
Post office Recurring 23 01
Kisan Vikas Patra 4.5 -26
With the Global Crisis a Revival is Expected
in Investor’s Confidence
Year Comm. Small Saving These are the
Banks Schemes 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.
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

 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:-

The bonus offered on maturity in the Monthly Income Scheme
was recently reduced from 10% to 5%.

The requirement of permanent account number should also be
extended to small savings. This may help reduce use of
unaccounted money in these schemes.

The task of collecting funds for small savings schemes is
carried out by about half a million licensed agents, This agency-
based 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