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saving and investment yearbook 2015

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Savings and Investment

01. Savings Bank Account
02. Bank Fixed Deposit
03. Company Deposits
04. Bank Recurring Deposit
05. Post Office Recurring Deposit
06. Post Office Term Deposit
07. Public Provident Fund
08. National Savings Certificate
09. Kisan Vikas Patra
10. Sukanya Samriddhi Yojana
11. Senior Citizen Savings Scheme
12. Post Office Monthly Income Scheme
13. RBI Savings Bond
14. Capital Gain Tax Exemption Bond or 54 EC Bonds
15. Rajiv Gandhi Equity Savings Scheme
16. Inflation Indexed Bonds
17. Mutual Funds
18. Stocks and Equity
19. National Pension System
20. Unit Linked Insurance Plans Protection
21. Health Insurance
22. Life Insurance
23. Annuity
Income Tax
24. Income Tax Planning
25. Tax Planning Strategies

Published in: Investor Relations

saving and investment yearbook 2015

  1. 1. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  2. 2. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The equity market in India has presented investors with the right environment to create wealth. Investors are upbeat and are looking to identify dependable ways to reach their long term financial goals. Which leads to one big question. There is no guarantee of returns/ income generation in the Scheme. Further, there is no assurance of any capital protection/capital guarantee to the investors in the Scheme. ^Investors should consult their financial advisors if in doubt about whether the product is suitable for them. Note: Risk may be represented as: (Blue): Investors understand that their principal will be at low risk (Yellow): Investors understand that their principal will be at medium risk (Brown): Investors understand that their principal will be at high risk Now is the time to strengthen your investment portfolio. Consider an equity mutual fund scheme that aims to discover the right opportunities that deliver growth to your portfolio. With a track record of over 17 years, this diversified equity scheme constantly seeks to generate capital appreciation by investing in high potential stocks. Consider this scheme if you believe in investing for the long term. So what do I do with my money? DSP BLACKROCK EQUITY FUND Open Ended Growth Scheme This Scheme is suitable for investors who are seeking^ Long-term capital growth Investment in equity and equity-related securities to form a diversified portfolio High Risk (Brown) HOW CAN I POWER MY INVESTMENT PORTFOLIO WITH HIGH POTENTIAL STOCKS? Speak to your investment advisor, or visit dspblackrock.com/equity for more. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  3. 3. Savings & Investment Yearbook 2015-16 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  4. 4. Eighth Edition : June 2015 Seventh Edition : December 2014 Sixth Edition : August 2014 Fifth Edition : April 2014 Fourth Edition : April 2013 Third Edition : April 2012 Second Edition : January 2012 First Edition : November 2011 Date of Eighth Edition Publication: June 1, 2015 Copyright © Value Research India Pvt. Ltd, New Delhi All Rights Reserved ISBN No. 978-93-83177-06-6 Published by Value Research India Private Ltd. 5, Commercial Complex, Chitra Vihar, Delhi-110092 PRINTED AT: OPTIONS PRINTOFAST, DELHI-110092 No Part of this book may be reproduced, stored in a retrieval system or transmitted in any form or means electronic, mechanical or photocopying, recording or otherwise without the permission of Value Research India Pvt. Ltd., New Delhi. Extracts with images are per- mitted for book review only. The structure, outline, approach, content, framework and materials in this publication shall be and remain (along with all intellectual property rights therein or thereto) to the exclusive property of Value Research India Pvt. Ltd. Every effort is made to provide accurate and up-to-date information in this publication as far as possible; we would appreciate if readers would call our attention to any errors that may occur. Some details, such as terms and conditions in respect to product features, are liable to change. The publishers cannot accept responsibility for any consequences arising from the use of information provided in this book. However, we would be happy to receive suggestions and corrections to be incorporated in the next edition. Please write to: The Editor, Value Research India Pvt. Ltd., 5, Commercial Complex, Chitra Vihar, Delhi-110092 or SIYB@valueresearch.in Editorial Editorial Update: Sanvee Jalan Design: Mukul Ojha Production Hira Lal Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  5. 5. Preface Dear Reader, Knowledge is power, and nowhere is this truer than in personal savings and investments. Those who know more about various savings and investments options are consistently able to earn more as well as keep their investments safer. All of us are often too busy to find out even the basic facts about the various savings options that are available. As a result, we often find ourselves at a disadvantage when it comes to making decisions about our money. The goal of this book is to destroy that disadvantage and give the advantage to you. In one easy-to-read package it gives you the information that you will need to choose the options that are most suitable for you, and also enable you to ask the right questions when someone is selling you a financial product. For over two decades, Value Research has been on a quest to make savings and investments simple, easy, interesting and accessible. This book is the latest addition to our range of publications. We hope that it will empower you to take charge of your investments and also enable you to make the choices that are best for you and your family. Live Long and Prosper Dhirendra Kumar Value Research Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  6. 6. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  7. 7. Contents SAVINGS AND INVESTMENT 1 Savings Bank Account 5 2 Bank Fixed Deposit 15 3 Company Deposits 23 4 Bank Recurring Deposit 29 5 Post Office Recurring Deposit 35 6 Post Office Term Deposit 41 7 Public Provident Fund 47 8 National Savings Certificate 55 9 Kisan Vikas Patra 61 10 Sukanya Samriddhi Yojana 67 11 Senior Citizen Savings Scheme 73 12 Post Office Monthly 79 Income Scheme 13 RBI Savings Bond 85 14 Capital Gain Tax Exemption 91 Bond or 54 EC Bonds 15 Rajiv Gandhi Equity Savings 97 Scheme 16 Inflation Indexed Bonds 103 17 Mutual Funds 111 18 Stocks and Equity 125 19 National Pension System 131 20 Unit Linked Insurance Plans 143 PROTECTION 21 Health Insurance 151 22 Life Insurance 161 23 Annuity 171 INCOME TAX 24 Income Tax Planning 177 25 Tax Planning Strategies 197 ANNEXURE AND RESOURCES 207 Value Research Online 215 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  8. 8. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  9. 9. Savings & Investment Yearbook 1 Introduction When it comes to handling money, you will end up either the victor or the victim; there is no middle ground. The biggest problem with money is that it doesn’t come with an instruction book. The result: many financial decisions that you make to save and invest end up eroding your personal and potential wealth. We live in an environment where choice rules and whether you are a do-it-yourself investor, a money neophyte or someone who is in the business of advising on financial products, you need to be aware of various savings and investment options available. In such situations, knowledge is your first line of defence. After all, what happens to you financially is what you know and do, or, by default, what you don’t know and therefore can’t do. Real financial power is created by Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  10. 10. knowing about financial products: what they are, what they are meant for, how they work and how you can gain from them. The Value Research Savings and Investment Yearbook 2015-16 is the roadmap to making informed choice to save and invest. This Savings and Investment Yearbook consists of an easy-to-read listing of various types of savings and investment instruments that a typical investor is likely to invest in. This book does not offer tips on investments that will double your money or guarantee astounding returns. As you would know, nobody can make such promises with any certainty. Written in a simple language, this handbook brings together resources and information on the various savings and investment options available, highlighting the factors that you should look out for before making any investment decision. As each product has unique features, common investor concerns such as risks, safety, guarantees, key benefits, minimum investments and lock-in are addressed in detail. We tell you ways to buy, the various tax implications and suitability besides tips and strategies to make the most of each featured product. The information in this book can be the building block in the creation of a secure and comfortable financial future for you. The product details will make you financially unstoppable—a real pro at winning the fight against financial freedom. The purpose of this book is not to provide advice but to present information which will help and empower you with investment decisions. Once you have gone through the details for each financial instrument, the book leads you to plan your taxes and also helps you with various strategies that you can adopt to optimise your tax liabilities. As this book is intended to be a living document, it will be updated as the market and regulatory environment continues to evolve and change. In the Union Budget, the Finance Minister introduced the Atal Pension Yojana, Sukanya Samriddhi Yojana and an Introduction Savings & Investment Yearbook2 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  11. 11. Introduction Savings & Investment Yearbook 3 additional tax exemption of up to `50,000 under Section 80CCD for the National Pension System. This version of the Yearbook is updated with all the changes. We have added information on new products: inflation- indexed bonds or inflation-indexed National Savings Securities- Cumulative (IINSS-C), the reintroduced Kisan Vikas Patra and infrastructure bonds, which offered tax benefits under Section 80CCF. We have retained the product snapshot in the Annexure. You don’t need to be an expert or have financial qualifications to manage your own money because you already have all you need: a desire to know and a book to lead the way. We hope the Value Research Savings and Investment Yearbook will give you the tools and information you need to achieve your savings and investment goals throughout your life. Read on. Savings and Investing can be profitable and fun. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  12. 12. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  13. 13. Savings & Investment Yearbook 5 Savings Bank Account You probably have a savings bank account, but chances are you have not given much thought to the impact banking has on your finances. Being knowledgeable about different types of savings bank accounts can save you money. 1 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  14. 14. It’s hard to get by without a bank account these days. Banks are essential to making the economy work. Banks offer loans that you can use to buy a house or a car, they issue debit cards that you can use to buy goods you want to buy. You may not have realised, though, that you can also save money by banking smartly. This chapter will describe the several savings bank options that are available. A bank account is a financial account with a banking institution, recording the financial transactions between you (the account holder) and the bank. The purpose of a bank account is to encourage savings and bring financial transactions into the banking network. There are several types of bank accounts that you can opt for depending on your needs; for instance, a businessman will prefer a current account compared to a salaried individual who will need a savings bank account. Savings Bank Account Savings bank accounts are meant to promote the habit of saving among people while allowing them to use their funds when required. The main advantage of a savings bank account is its high liquidity, safety and a moderate interest on the savings. Capital Protection The capital in a savings bank account is not completely safe. Balance in the account including interest earned, is insured up to a maximum of `1 lakh. This sum is insured by the Deposit Savings Bank Account Savings & Investment Yearbook6 Investment Objective and Risks The savings bank account is the traditional home for cash savings. Today, a savings bank account is a necessity and is an essential component of an individual’s finances. The most important reason to open an account is the automatic access that it offers to other financial instruments such as investments, loans and savings. The savings bank account offers several other facilities and features that one should explore to make optimum use of cash flows. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  15. 15. Savings & Investment Yearbook 7 Savings Bank Account Features ELIGIBILITY You nneed tto bbe aa RResident IIndian ENTRY AGE No aage iis sspecified aand mminors ccan oopen aan aaccount wwith tthe nnatural gguardian operating iit Minors aabove aage 110 ccan ooperate tthe aaccount oon ttheir oown ACCOUNT OPENING FEE No ffees, bbut aa mminimum ccash ddeposit iis rrequired tto oopen aan aaccount ACCOUNT MAINTENANCE AND CHARGES Minimum bbalance rrequired ddepending oon aaccount llocation wwhich ccould bbe urban, ssemi-uurban oor rrural Minimum bbalance rrequired ddepending oon aaccount ttype ssuch aas nno-ffrills, savings, ssalary-llinked, ddeposit-llinked Predefined nnumber oof ttransactions pper mmonth aare ffree, bbeyond wwhich transactions aare ccharged ffor INTEREST Fixed rrate ccompounded hhalf yyearly uup tto `1 llakh, wwith aa mminimum 44 pper ccent aat the mmoment, tthough ssome bbanks ooffer aa hhigher rrate tthan tthis Variable iinterest rrate oon tthe bbalance aabove `1 llakh iin tthe aaccount The iinterest iis ccalculated oon aa ddaily bbalance mmethod OTHER FEATURES OFFERED Cheque bbook ffacility, AATM ccum ddebit ccard, AAccess tto llocker ((fee ccharged bbased on llocker ssize), IInternet bbanking, PPhone bbanking, MMobile bbanking TENURE As llong aas tthe aaccount iis aactive ACCOUNT HOLDING CATEGORIES Individual, JJoint, HHindu UUndivided FFamilies ((HUF) nnot eengaged iin aany ttrading oor business aactivity, MMinor tthrough tthe gguardian NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  16. 16. Insurance and Credit Guarantee Corporation (DICGC) for all commercial banks, including the branches of foreign banks functioning in India, local area banks and regional rural banks. In case of co-operative banks, you will need to check if it is covered under the DICGC because if a bank has not been paying the premium for the insurance scheme for three consecutive years, it ceases to be insured. Inflation Protection A savings bank account does not provide protection against inflation, which means whenever inflation is above the rate that a savings bank account earns; the account earns no real returns. Guarantees The interest rate in a savings bank is guaranteed up to the first `1 lakh balance in the account. This rate varies across banks since the Reserve Bank of India deregulated the savings bank deposit interest rate on October 25, 2011. Banks are now free to determine the interest on the balance in a savings bank account, which has to be uniform for all types of accounts up to `1 lakh in an account but varies for accounts with a higher balance. Liquidity The savings bank account is highly liquid and one can withdraw cash from one’s account from the branch during the banking hours. Today, the automated teller machine (ATM) access is offered by most banks to savings bank account holders. The ATM allows 24-hour withdrawals within limits in a single day which varies across banks and also depending on the account type. When settling payments through real time gross settlement (RTGS) feature; transactions are possible from 9.00 AM to 4.30 PM on weekdays and from 9.00 AM to 1.30 PM on Saturdays for real time settlement. Savings Bank Account Savings & Investment Yearbook8 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  17. 17. Exit Option You can close the account on any day within the banking hours. Other risks Balance, including interest in an account above `1 lakh, is exposed to the risk of a bank folding up. Credit Rating Opening a savings bank account does not entail credit rating. Tax Implications Interest earned in the savings bank account up to `10,000 per annum is tax exempt under section Section80TTA since 2012-13. This section allows an income tax deduction to an individual or a HUF for interest earned on the savings bank account held with a Bank, Post Office or a Society. Interest amount above this limit is treated as income and taxed accordingly. The interest earned is taxable under the head ‘Income from other sources’. Is online banking safe? Online banking takes security very seriously and uses encryption technology to protect account holders from hackers and other security risks. However, you should not take the bank’s word for it blindly; explore your bank’s website and look for the security provisions it offers. Online banking works on passwords and the onus of safety partly rests with you. Is online banking for you? It’s most beneficial if: You are wired with online access You make a lot of bill payments each month; online banking Savings Bank Account Savings & Investment Yearbook 9 None of the public sector banks have folded up in India, which is not the case for co-operative banks. Make sure you are choosing a bank which has strong credentials and is safe. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  18. 18. can save you time writing out cheques and associated costs You can track your expenses and manage your finances efficiently How does it work? Websites differ across banks, but managing your finances online should be as simple as logging on to the bank’s website and entering you user ID and password to get started. The site will then guide you through actions you seek to perform, be it viewing the transaction history of your account, request for a cheque book, account statements, stop payment requests or for any other banking facility that you need. Banking on the move The advent of mobile telephony has touched our lives like never before. Today, banks are making it easier than ever for account holders to access account information on their mobile devices. Some banks are offering new services or improving existing ones that allow people to access their accounts while on the go. You access your bank account through your registered mobile phone with your bank. The features offered in mobile banking are of two types; one-way, where your bank sends you mobile updates; the other which is a two-way service where you send a request, which the bank acknowledges. With evolving technology and improving mobile handsets, Savings Bank Account Savings & Investment Yearbook10 GOING ONLINE It goes by many names, such as: online banking, Internet banking, PC banking and electronic banking. Most banks today offer online banking, allowing you to access your account online which is convenient and allows you to control your account from anywhere. Online banking permits you to pay bills online, transfer money between accounts, online shopping, and access account information at any time and manage different types of accounts with a particular bank. Online banking opens a new window to your finances; you can invest in stocks, buy insurance, pay renewal premiums, and recharge your mobile phone, pay credit card bills and even pay taxes depending on the facilities offered by your bank. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  19. 19. banks are creating software for mobile banking interface, opening yet another window to banking. With inter-bank mobile payment services (IMPS), you can transfer funds from your account to another account using your mobile phone if the account where money is being transferred is also IMPS enabled. Currently, IMPS transaction is limited to `50,000 per day per account. How IMPS Works to transfer funds Register your bank account with your bank for mobile banking services Get the mobile personal identification number (MPIN) and mobile money identity number (MMID) from your bank Download and activate the mobile application on your phone Get the MMID and MPIN of the person to whom you wish to transfer funds Use the mobile banking menu to transfer funds Check the sms (short message service) on your mobile phone confirming debit to your account How IMPS Works to receive funds Register your bank account with your bank for mobile banking Get the MMID from your bank Share the MMID and your mobile number with the remitter Check sms confirming credit to your account Various types of Savings Bank Account on Offer No Frills This account is aimed at those with limited cashflows This account allows you to bank with a zero minimum balance Savings Bank Account Savings & Investment Yearbook 11 If the balance in this account exceeds `50,000 or if the cumulative value of credit transactions exceeds `1 lakh in any financial year, the account will no longer be treated as ‘No Frills’. The account will be required to satisfy the conditions and criteria applicable for a regular savings account and be subject to relevant charges. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  20. 20. Savings & Investment Yearbook12 Savings Bank Account There is stipulation on minimum or average balance Salary Account This account is offered to all salaried employees of companies banking with a particular bank The account comes with concessions on maintaining minimum balance, number of withdrawals, additional cheque book facility and other features including free ATM cum debit card in most instances One can issue multi-city cheques at no additional costs Sweep-in or Multiplier Account This account provides the liquidity of a savings account coupled with high interest earnings of a fixed deposit which is achieved through a fixed-deposit linked to the savings account The balance in this account is never idle. Fixed deposit(s) from the surplus funds in your savings bank account subject to a minimum balance as stipulated by a bank is created in multiples of sums stipulated by the bank for tenure of one year or more as instructed and provides maximum returns The account also provides maximum liquidity. All linked fixed deposits are enabled for automatic reverse sweep in multiples as stipulated by the particular bank on a last-in-first-out (LIFO) basis when the balance in the savings account falls below the specified minimum sum. This way the amount that is reversed earns interest rates applicable for the period that the deposit was held with the bank Miscellaneous Accounts Banks have created accounts to cater to different target groups by bundling features that are addressed to such groups: Features vary across banks and also depend on the bank’s relationship with the corporate client. Service tax @ 14 per cent is applicable on facilities offered with this account. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  21. 21. Savings Bank Account Savings & Investment Yearbook 13 Privilege banking: offers additional services for a fee or on maintaining higher minimum balance Children’s Account: targeted at children, they can operate this account based on pre-set conditions by the parent or guardian Account for Women: Targeted at women with special features such as privilege cards and special discounts Senior Citizen Account: Aimed at those above 60 years, the account offers access to special counters in the bank branch besides additional interest on deposits and low or no minimum balance maintenance requirements Where to open an Account You can open an account at any nationalised, private sector or foreign bank. How to open an Account Once you have selected the bank to open an account you will need the following documents: An account opening form which the bank will provide Two passport size photographs Address and identity proof such as copy of the passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, voter’s ID or ration card Carry original identity proof for verification at the time of account opening These days, you can also also open an online account without visiting the bank branch How to operate an Account? You need a pay-in slip with the initial account opening sum to be credited into your account The savings bank rules can be read in the passbook. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  22. 22. Savings Bank Account Savings & Investment Yearbook14 You get a saving bank passbook with your photo affixed stating the nominee. However, some banks, especially private and foreign banks do not issue a passbook and instead deliver an account statement Types of Transactions Cash, Cheque, Demand draft, Money transfer and ECS Points to Ponder Penalties when the balance falls below the minimum stipulated sum Penalty when cheques are returned Collection facilities offered and applicable charges Details of charges, if any for issue of cheque books and limits fixed on number of withdrawals and cash drawings The joint account holders can give any of the following mandates for the disposal of balance, which can be modified by the consent of all the account holders Either or Survivor: If the account is held by two individuals say, A and B, the final balance along with applicable interest will be paid to the survivor on death of any one of the account holders. Anyone or Survivor(s): If the account is held by more than two individuals say, A, B and C, the final balance along with interest, if applicable, will be paid to the survivor on death of any two account holders. TIPS AND STRATEGIES Search for a savings bank account with this criterion: The bank offers different types of savings accounts The bank provides free debit card with no annual fees The bank insures the savings bank account The bank offers payable-at-par cheques all over India Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  23. 23. Savings & Investment Yearbook 15 Bank Fixed Deposit Robert Louis Stevenson said; “Don’t judge each day by the harvest you reap but by the seeds that you plant.” A bank deposit is similar to sowing seeds. You park a sum in an account which earns you an interest for the time that the amount sits in the account, growing at a faster pace than what it would have in an ordinary savings bank account. 2 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  24. 24. A bank fixed deposit is also known as term deposit, which can be opened by account holders to earn better interest compared to the interest that the account balance earns in a savings bank account. This is a type of instrument in which a certain sum of money is placed with the bank for a specified time period at a fixed interest rate. The interest rates offered by banks on such deposits depend on the number of days, weeks or months for which the deposit is maintained. There is great flexibility in the maturity period which ranges from 15 days to 10 years. The interest is higher in case of longer maturity periods and can be compounded quarterly, half-yearly or annually and varies across banks. The main draw for such deposits is the guaranteed higher interest that deposits earn. Capital Protection The capital in a bank deposit is not fully protected. Till recently, all bank deposits were insured under the Deposit Insurance and Credit Guarantee Scheme of India, which now has been made optional exposing the deposits to risks if the bank is not insuring deposits. Inflation Protection The deposit is not inflation protected, which means whenever inflation is above the deposit interest rate; the deposit earns no real returns. However, when the interest rate is higher than inflation rate, it does manage a positive real rate of return. Bank Fixed Deposit Savings & Investment Yearbook16 Investment Objective and Risks The prime objective of the bank deposit is to earn better interest on savings compared to what an ordinary savings bank offers. Such deposits are preferred by risk-averse investors, who find the guaranteed fixed returns extremely reassuring to invest in. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  25. 25. Savings & Investment Yearbook 17 Bank Fixed Deposit Features ELIGIBILITY You nneed tto bbe aa RResident IIndian wwith aa ssavings bbank aaccount ENTRY AGE You nneed tto bbe oover 118 yyears oold Minors ccan oopen aa ddeposit wwith tthe nnatural gguardian ooperating iit INVESTMENTS Minimum: `1,000 pper aannum Maximum: NNo llimit Deposits aabove `15 llakh qqualify ffor sspecial iinterest rrates INTEREST Depends oon ttenure oof tthe ddeposit ((See ttable ffor ccurrent rrates) Currently sstarts ffrom 77.50 pper ccent tto 99.25 pper ccent pper aannum TENURE Currently ooffered uup tto tten yyears ACCOUNT HOLDING CATEGORIES Individual Joint Hindu UUndivided FFamilies ((HUF) nnot eengaged iin aany ttrading oor bbusiness aactivity Companies oor AAssociations oor TTrust Minor tthrough tthe gguardian NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  26. 26. Guarantees The interest rate is fixed and guaranteed for the duration of the deposit at the commencement of the deposit. Liquidity The bank deposit is liquid, despite the lock-in during the tenure of the deposit. The liquidity is offered in the form of loans and withdrawals subject to conditions. Credit Rating Bank deposits do not carry any credit rating. Exit Option Early closure of a deposit is permitted with a penalty. Other risks Interest rate changes pose risks to existing deposit holders; for instance, you may have locked-in at a lower interest rate but due to economic factors; the bank starts to offer a higher rate on deposits later. If the bank where you have the deposit does not have deposit insurance and credit guarantee, you run the risk of losing the capital and the interest. Tax Implications The amount invested in deposits with a maturity period of 5 years in a scheduled bank is eligible for tax deduction under Section 80C. However, the interest earned on the deposit is taxable. Bank Fixed Deposit Savings & Investment Yearbook18 Loan on the deposit up to 75-90 per cent of the deposit amount is available from banks against the fixed deposit receipt. Though the interest charged on the loan will be marginally higher than the interest earned by the deposit. The deposit can be closed prematurely at the cost of losing the interest it earns. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  27. 27. Various Types of Bank Fixed Deposits Fixed deposit In this type of deposit both the tenure and the interest rate for the tenure are fixed Recurring deposit In this type of deposit, bank account holders deposit equal amount of money every month The interest rate is fixed for the deposit tenure and so is the number of monthly instalments Security deposit A few corporate organisations stipulate new employees to provide security deposit to check attrition. This deposit is made by an employee and he cannot withdraw such fixed deposits without the consent of the employer The company has the right to the FD in case an employee leaves the organisation before a certain stipulated period Bank Fixed Deposit Savings & Investment Yearbook 19 GOING ONLINE Having an online banking user and password is like having the key to several doors. One such door is the ability to open a hassle free fixed deposit from the comfort of your home or office or for that matter anywhere as long as you have access to net banking. You can seamlessly transfer funds from your savings account to higher interest earning fixed deposits. Flexibility in deciding the amount, tenure, interest payment and maturity of your deposit At the time of maturity, the balance automatically transfers to your bank account As per the term deposit scheme 2006, issued by the Central Government of India, the 5-year tax savings fixed deposit scheme will not have the following facilities: premature withdrawal, loan against fixed deposit and auto-renewal facility. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  28. 28. Tax-saver fixed deposit 5-year lock-in deposits have tax benefits under Section 80C Where to Open a Deposit You can open a deposit at any nationalised, private sector or foreign bank How to Open a Deposit Select the bank branch to open the deposit Choose a nominee and get a witness signature Your existing bank account counts as being KYC compliant How to Operate a Deposit You can issue a cheque to the bank through your existing savings bank account to start a deposit A deposit receipt or certificate is issued with deposit details Types of Transactions Cheque Money transfer Electronic clearing service (ECS) Bank Fixed Deposit Savings & Investment Yearbook20 The joint account holders can give any of the following mandates for the disposal of balance, which can be modified by the consent of all the account holders. Either or Survivor: If the account is held by two individuals say, A and B, the final balance along with applicable interest will be paid to survivor on death of any one of the account holders. Anyone or Survivor(s): If the account is held by more than two individuals say, A, B and C, the final balance along with interest, if applicable, will be paid to the survivor on death of any two account holders. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  29. 29. Bank Fixed Deposit Savings & Investment Yearbook 21 TIPS AND STRATEGIES Check interest rates offered by different banks for dif- ferent tenures Instead of a large deposit, split the amount into 3-5 deposits to reduce impact of interest loss in case of premature withdrawal Do not leave the renewal column unfilled; else on maturity a fresh fixed deposit tenure will commence Ascertain the upward or downward interest rate trends before locking in to a deposit Points to Ponder Minimum sum to start a deposit Penal provisions in case of partial or early foreclosure Interest Rates for Term Deposits below `1 crore Maturity Period General Senior Citizen* 7 days to 45 days 6.00% 6.25% 46 days to 179 days 7.00% 7.25% 180 days to 210 days 7.25% 7.50% 211 days to less than 1 year 7.50% 7.75% 1 year to 455 days 8.00% 8.25% 456 days to less than 2 years 8.25% 8.50% 2 years to less than 3 years 8.25% 8.50% 3 years to less than 5 years 8.25% 8.50% 5 years and up to 10 years 8.00% 8.25% Rates of Interest (% p.a.) w.e.f May 11, 2015 *Interest rates for senior citizens Source: https://www.sbi.co.in/user.htm Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  30. 30. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  31. 31. Savings & Investment Yearbook 23 Company Deposits Someone said, a rupee saved is a rupee earned. He could not have been wiser. Deposits earn interest and grow the deposited rupee over a period of time to a value far more than the initial deposit. 3 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  32. 32. Like bank fixed deposits, company fixed deposit is a deposit with financial institutions and non-banking finance companies (NBFC) for a fixed rate of return over a fixed tenure. The rate of interest depends on the maturity tenure and these deposits are governed by Section 58A of the Companies Act. Capital Protection The capital in the company fixed deposit is not protected because these are not secured like most bank deposits. Inflation Protection The company deposit is not inflation protected, which means whenever inflation is above the guaranteed interest rate offered by the deposit; the deposit earns no real returns. However, when the interest rate is higher than inflation rate, it does manage a positive real rate of return. Guarantees The interest rate on the company deposit is guaranteed as long as the company can manage to pay the depositors. However, company deposits are known to be delayed and at times default on payments. Liquidity The company deposit is liquid, despite the stipulated lock-in that deposits have. The liquidity is offered in the form of withdrawals subject to conditions. Company Deposits Savings & Investment Yearbook24 Investment Objective and Risks The prime objective of investing in company deposits is to earn a higher interest rate compared to bank fixed deposits. They are a good source of regular income by means of monthly, quarterly, half-yearly, or yearly interest incomes. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  33. 33. Savings & Investment Yearbook 25 Company Deposits Features ELIGIBILITY Resident IIndians ENTRY AGE 18 yyears oor oolder Minors ccan oopen aan aaccount wwith tthe nnatural gguardian ooperating iit INVESTMENTS Minimum: `1,000 pper aannum Maximum: NNo llimit INTEREST Depends oon ttenure oof tthe ddeposit aand tthe iissuer ACCOUNT HOLDING CATEGORIES Individual Joint As sspecified bby tthe iissuer NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  34. 34. Credit Rating A company deposit has to have a credit rating, which they can obtain from any of the credit rating agencies such as CRISIL, CARE or ICRA. Exit Option Premature encashment of the deposit is permissible. Other risks Savings in this product are risky because deposits are not secured. Tax Implications The sum invested in a company deposit or the interest that it earns is not eligible for any tax concessions. The interest earned on a deposit on a yearly basis is added to the total income under the head ‘Income from other sources’ and taxed accordingly. Going Online Most company deposits are offered offline, unless it is being sold online through a broking account. Where to open a Deposit Deposits can be made directly with the companies offering the deposit or distributors selling the same. Company Deposits Savings & Investment Yearbook26 If a lender such as a bank or NBFC is willing to accept the company deposit as collateral; you can pledge the deposit to obtain loans, the amount and rate at which the loan is permitted depends on the lending institution. A company deposit can be prematurely encashed and each company deposit has different charges on exit that is governed by the time that the deposit has been held for. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  35. 35. How to Buy Once you have decided on the sum that you wish to invest and the tenure: You need to fill the deposit application form available with the company Carry original identity proof for verification at the time of buying You can invest in deposits with cash, cheque or demand draft drawn in favour of the company or the specified entity Points to Ponder Company deposits are risky TDS is applicable only when interest is above `5,000 in a financial year Interest income is available in monthly, quarterly, half- yearly, or yearly frequencies The recourse in case of delays or defaults are not very tight or regulated Company Deposits Savings & Investment Yearbook 27 In case of default by a company, the investor cannot sell the deposit documents to recover his investment. The investor has no claim over the assets of the company in case the company is wound-up. This makes a company fixed deposit a risky option to invest in. To spread the risk of holding company deposits, make deposits with different companies for different tenures to minimise risks. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  36. 36. Company Deposits Savings & Investment Yearbook28 TIPS AND STRATEGIES The assured return on company deposit, like any other deposit, can be used to create an income ladder. Certificates can be bought every month or quarter for appropriate denominations, which on maturity will act as a steady income stream To spread the risk of holding company deposits, make deposits with different companies for different tenures to minimise risks Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  37. 37. Savings & Investment Yearbook 29 Bank Recurring Deposit Albert Einstein once said, “The most powerful force in the universe is compound interest.” When someone as brilliant as him talks about the power of compounding, one tends to listen! Recurring deposit offers compounding; the fact that interest increases the value of interest as well as the value of principal. 4 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  38. 38. A bank recurring deposit (RD) is a type of deposit wherein one saves predefined sums of money every month in an account for a fixed tenure. The committed monthly investment earns a higher interest compared to savings bank account. The recurring deposit provides an element of compulsive savings at a higher interest rate depending on the tenure of the deposit. The interest rates offered by banks on such deposits depend on the number of days, weeks or months for which the recurring deposit is maintained. There is great flexibility in the maturity period which ranges from 6 months to 10 years. The interest is higher in case of longer maturity periods, but largely depends on prevailing interest rates. Capital Protection The capital in a recurring deposit is not fully protected. Till recently, all bank deposits were insured under the Deposit Insurance and Credit Guarantee Scheme of India, which now has been made optional exposing the deposits to risks if the bank is not insuring deposits. Inflation Protection The recurring deposit is not inflation protected, which means whenever inflation is above the deposit interest rate; the deposit earns no real returns. However, when the interest rate is higher than inflation rate, it does manage a positive real rate of return. Guarantees The interest rate is fixed and guaranteed for the duration of the recurring deposit at the commencement of the deposit. Bank Recurring Deposit Savings & Investment Yearbook30 Investment Objective and Risks The prime objective of the recurring deposit is to earn better interest on savings compared to what an ordinary savings bank offers and instil discipline to save regularly. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  39. 39. Savings & Investment Yearbook 31 Bank Recurring Deposit Features ELIGIBILITY You nneed tto bbe aa RResident IIndian wwith aa ssavings bbank aaccount ENTRY AGE You nneed tto bbe oover 118 yyears oold Minors ccan oopen aa ddeposit wwith tthe nnatural gguardian ooperating iit INVESTMENTS Minimum: `100 pper aannum Maximum: NNo llimit Senior ccitizens qqualify ffor sspecial iinterest rrates INTEREST Depends oon ttenure oof tthe ddeposit ((see ttable ffor ccurrent rrates) Currently aavailable ffrom 88.25 pper ccent tto 99.25 pper ccent pper aannum TENURE Currently ooffered ffor tten yyears ACCOUNT HOLDING CATEGORIES Individual Joint Hindu UUndivided FFamilies ((HUF) nnot eengaged iin aany ttrading oor bbusiness aactivity Companies oor AAssociations oor TTrust Minor tthrough tthe gguardian NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  40. 40. Liquidity The recurring deposit is liquid, even if the depositor defaults on a payment during the account’s tenure. The liquidity is offered in the form of loans and withdrawals subject to conditions. Credit Rating Recurring deposits do not carry any credit rating. Exit Option Premature closure of a deposit is permissible with a penalty. Other risks Interest rate changes pose risks to existing deposits; for instance, you may have locked-in at a lower interest rate but due to the economic factors, the bank starts to offer a higher rate on deposits later If the bank where you have the deposit does not have deposit insurance and credit guarantee, you run the risk of losing the capital and the interest A bank has special powers to end an RD account before its maturity Bank Recurring Deposit Savings & Investment Yearbook32 Loan up to 90 per cent of the deposit balance is available at the discretion of the bank at a rate fixed by the bank, which varies from time to time. The loan interest rate has to be more than the interest rate on the closed RD account. The deposit can be closed prematurely at the cost of losing the interest it earns. GOING ONLINE With online banking access, you can initiate recurring deposits and regularly save without any defaults with the seamless transfer of funds from your savings account to the recurring deposit account. Flexibility in deciding the amount, tenure, interest payment and maturity of your deposit At the time of maturity, the balance automatically transfers to your bank account Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  41. 41. Tax Implications There is no tax advantage on these deposits and the interest earned on maturity is treated as income from other source when computing income tax. Effective from June 1, 2015, TDS will be deducted on interest income above `10,000 at 10%. Where to Open a Deposit You can open a recurring deposit at any nationalised, private sector or foreign bank. How to Open a Deposit Select the bank branch to open the deposit Choose a nominee and get a witness signature Your existing bank account counts as being KYC compliant How to Operate a Deposit You can issue a cheque to the bank through your existing savings bank account to start a deposit. Future payments can be instructed through direct debt from your account to the RD account A recurring deposit passbook is issued with deposit features Passbook needs to be updated to track the monthly deposits Types of Transactions Cheque Money transfer Electronic clearing service (ECS) Points to Ponder Minimum sum needed to start a deposit Penal provisions in case of partial or early foreclosure Bank Recurring Deposit Savings & Investment Yearbook 33 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  42. 42. Bank Recurring Deposit Savings & Investment Yearbook34 TIPS AND STRATEGIES Check the interest rates offered by different banks for different tenures Some banks offer flexible or variable recurring deposits. In these flexible RDs, the person is allowed to deposit even higher amount of instalments, with a fixed upper limit Use direct transfer from your bank account to keep an RD account active and from missing payments Before investing in a deposit it is important to consider the rate of interest and the inflation rate. A high inflation rate can eat into your real returns. So, it is vital to have a look at the inflation rate before arriving at the real rate of interest Rates for some key tenures Maturity Period General Senior Citizen* 1 year to 455 days 8.00% 8.25% 456 days to less than 2 years 8.25% 8.50% 2 years to less than 3 years 8.25% 8.50% 3 years to less than 5 years 8.25% 8.50% 5 years and up to 10 years 8.00% 8.25% **Only Senior Citizens are eligible for higher rates of interest. Rates of Interest (% p.a.) w.e.f May 11, 2015 Note: Interest rates are subject to periodic changes. The applicable inter- est rates will be given based on the date and time of receipt of the funds by the bank. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  43. 43. Savings & Investment Yearbook 35 Post Office Recurring Deposit A mountain is composed of tiny grains of earth. The ocean is made up of tiny drops of water. Your regular small savings help you build a sizeable savings over time. The postal recurring deposit is an instrument for the small saver. 5 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  44. 44. The Post Office Recurring Deposit (PORD) is a systematic savings plan, where you save a small but finite equal sum of money each month for a period of 60 months. The savings in the PORD earn a fixed interest which can be used to accumulate a sizeable and predetermined savings over time. Capital Protection The capital in the PORD is completely protected as the scheme is backed by the Government of India with guaranteed returns. Inflation Protection The PORD is not inflation protected. Whenever inflation is above the guaranteed interest rate; the scheme earns no real returns. But when the inflation rate is below the guaranteed rate, it does manage a positive real return. Guarantees The interest rate is guaranteed and is currently 8.40 per cent compounded quarterly. The interest rates on this deposit are notified every year before April 1, and is aligned with G-Sec rates of similar maturity, with a spread of 0.25 per cent. Post Office Recurring Deposit Savings & Investment Yearbook36 Investment Objective and Risks The main objective of the PORD is to provide an assured 8.40 per cent return compounded quarterly on every monthly deposit made over 60 months. Though it offers no tax incentives, it is a preferred instrument amongst small savers for the government backing that this product offers. The facility of pledging the deposit in the PORD account to obtain loans is not permitted as it defeats the purpose of regular savings. Premature closure of this account is permitted after completion of three years from the date of opening of the account. One withdrawal up to 50 per cent of the balance is allowed after one year. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  45. 45. Savings & Investment Yearbook 37 Post Office Recurring Deposit Features ELIGIBILITY You nneed tto bbe aa RResident IIndian ppreferably wwith aa ppost ooffice ssavings aaccount ENTRY AGE No aage llimit iis mmentioned Minors aabove aage 110 yyears ccan oopen aan aaccount iin ttheir oown nname ddirectly INVESTMENTS Minimum: `10 oor iin mmultiple oof `5 tthere oof Maximum: TThere iis nno uupper llimit INTEREST 8.40 pper ccent ccompounded qquarterly TENURE 60 mmonths ACCOUNT HOLDING CATEGORIES Individual Joint Minor tthrough tthe gguardian NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  46. 46. Liquidity The PORD is liquid, despite the 60-month stipulated lock-in. The liquidity is offered in the form of withdrawals subject to conditions and penalties. Credit Rating As the PORD is offered by the Government of India, it does not require any commercial rating. Exit Option Premature closing of the account is permitted with penalty. Other Risks There is no risk associated with this investment and it is completely risk-free. Tax Implications There is no tax benefit on the savings or income earned from this scheme. Where to open an Account You can open the account at any post office. How to Open an Account Once you have selected the post office to open the PORD account, you will first need to open a post office savings account to link the monthly payment to the PORD and you will need the following documents: An account opening form which the post office will provide Two passport size photographs Address and identity proof such as copy of the passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, voter’s identity card or ration card Carry original identity proof for verification at the time of Post Office Recurring Deposit Savings & Investment Yearbook38 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  47. 47. account opening Choose a nominee and get a witness signature to complete the formalities to start the deposit How to Operate the Account? You need a pay-in slip with the initial account opening sum to be credited into your account Payment can be made by cash, cheque or instructions to transfer it through your post office savings account Points to Ponder Portability of the account from one post office to another Five year tenure of the account Facility of continuing the recurring deposit for a maximum period of five years on completion of the first five-year tenure Accounts with not more than four defaults in deposits can be regularised within a period of two months on payment of a default fee Account becomes discontinued after more than four defaults Interest income is taxable with no TDS certificate issued Post Office Recurring Deposit Savings & Investment Yearbook 39 GOING ONLINE There is no online access to post office accounts as yet. The PORD account has a passbook with rules applicable to the accounts stated in it. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  48. 48. Post Office Recurring Deposit Savings & Investment Yearbook40 TIPS AND STRATEGIES To avoid defaults in deposits, link the post office savings account to the recurring deposit account for standing transfer instruction to the RD. Use the advance payment on deposit to gain on discounts on the recurring deposit sum. Case 11: In an active account: six or more deposits but not exceeding eleven deposits made in any calendar month, fetches `1 rebate on every `10 denomination recurring deposit. Case 22: Twelve or more deposits made in any calendar month, fetches a rebate of `4 for every twelve deposits and `1 for the balance, if any, of not less than six deposits. Full maturity value allowed on the recurring deposit account restricted to `50 denomination in case of depositor’s death subject to certain conditions Automatic credit of monthly interest to saving account if accounts are at the same post office Post Office Recurring Deposit over the years Dec-2011 Maturity Period 2014-2015 2013-2014 2012-2013 Mar-2012 5-year Recurring deposit 8.4 8.3 8.4 8.0 All figures in per cent Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  49. 49. Savings & Investment Yearbook 41 Post Office Term Deposit The futility to predict is best described by Peter Drucker, who said; “Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.” Yet predictability in life, especially with finances is something that many people look up to. Many of the financial products available at the post office provide this predictability which makes them one of the preferred products among the small savers. 6 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  50. 50. The Post Office Term Deposit (POTD) is similar to a bank fixed deposit, where you save money for a definite time period earning a guaranteed return through the tenure of the deposit. At the end of the deposit’s tenure; the maturity is made up of the capital deposited and the interest it earns. Capital Protection The capital in the POTD is completely protected as the scheme is backed by the Government of India, making it totally risk-free with guaranteed returns. Inflation Protection The POTD is not inflation protected, which means whenever inflation is above the guaranteed interest rate; the return from the scheme earns no real returns. However, when the inflation rate is below the guaranteed return, it does manage a positive real rate of return. Guarantees The interest rate on the POTD is guaranteed for the tenure one opts for which varies from 8.40 per cent for a year to 8.50 per cent for a five-year deposit. The interest rates on this deposit are notified every year before April 1, and is aligned with G-Sec rates of similar maturity, with a spread of 0.25 per cent. Liquidity The POTD is liquid, despite the deposit lock-in. One can borrow against the deposit or withdraw the deposit prematurely. Post Office Term Deposit Savings & Investment Yearbook42 Investment Objective and Risks The main objective of the POTD is to provide an assured return on the deposit depending on the duration of the deposit. The low-risk associated with this deposit scheme makes it a popular small savings deposit. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  51. 51. Savings & Investment Yearbook 43 Post Office Term Deposit Features ELIGIBILITY You nneed tto bbe aa RResident IIndian ppreferably wwith aa ppost ooffice ssavings bbank aaccount ENTRY AGE No aage llimit iis mmentioned A mminor aabove aage 110 yyears ccan oopen aan aaccount oon ttheir oown nname ddirectly INVESTMENTS Minimum: `200 aand iin mmultiples tthereof Maximum: TThere iis nno uupper llimit INTEREST Interest rrate oof 88.40 pper ccent tto 88.50 pper ccent ddepending oon tthe ttenure oof tthe deposit Interest ppayable aannually bbut ccalculated qquarterly TENURE 1,2,3 oor 55 yyears ACCOUNT HOLDING CATEGORIES Individual Joint Minor tthrough tthe gguardian NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  52. 52. Other risks There is no risk associated with this investment and hence, it is risk-free. Credit Rating As the POTD is offered by the Government of India, it does not require any commercial rating. Tax Implications There is no tax benefit on deposits with less than five-year tenure. The five-year deposit qualifies for tax deductions under Section 80C on the sum deposited. Where to open an Account You can open the account at any head post office or general post office. How to Open an Account Once you have selected the post office to open the POTD account, you can open a POTD for which you will need the following documents: A deposit opening form provided by the post office Address and identity proof such as copy of the passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, Post Office Term Deposit Savings & Investment Yearbook44 GOING ONLINE There is no online access to post office accounts as yet. Premature withdrawal or closure of the POTD is permitted after completion of six months of initiating the deposit. Withdrawal after six months but before completion of a year will earn 4 per cent that post office savings account earns. Withdrawal after a year earns interest which is 1 per cent less than what the deposit earns for that specific deposit tenure. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  53. 53. voter’s ID or ration card Carry original identity proof for verification at the time of account opening Choose a nominee and get a witness signature to complete the formalities to start the deposit How to Operate the Account? You need a pay-in slip with the initial deposit opening sum to be credited into your account Payment can be made by cash or cheque Points to Ponder Portability of the account from one post office to another Facility of extending the deposit on maturity Interest income is taxable but there is no TDS certificate issued Maturity proceeds not drawn are eligible to saving account interest rate for a maximum period of two years Post Office Term Deposit Savings & Investment Yearbook 45 The POTD has a passbook with rules applicable to the account stated in them. Time Deposit Interest Rates over the years Maturity Period 2015-16 2014-2015 2013-2014 2012-2013 1-year time deposit 8.4 8.4 8.2 8.2 2-year time deposit 8.4 8.4 8.2 8.2 3-year time deposit 8.4 8.4 8.3 8.4 5-year time deposit 8.5 8.5 8.4 8.5 All figures in per cent Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  54. 54. Post Office Term Deposit Savings & Investment Yearbook46 TIPS AND STRATEGIES Instead of depositing a large sum in a single deposit, one should consider splitting the deposit, which could also be across varying tenures. This way, in case of any premature withdrawal; only a few deposits will lose interest One can stagger the deposits over different tenures to create variable income streams over time Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  55. 55. Savings & Investment Yearbook 47 Public Provident Fund Warren Buffett said, “Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.” For tax savers, the public provident fund does one step better; it guarantees returns. This systematic savings plan works on the dual benefit of power of compounding and regular investments. 7 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  56. 56. The public provident fund (PPF) is a long-term savings instrument established by the Central Government, which offers tax concessions on savings as well as withdrawal after the lock-in period. This scheme came into force from July 1, 1968 and is backed by the government with the objective of providing old-age income security to the self-employed and those working in the unorganised sector. Though the scheme is voluntary, the assured return and tax deduction on savings has fuelled its popularity. Capital Protection The capital in a PPF account is completely protected as the scheme is backed by the Government of India, making it fully risk-free with guaranteed returns. Inflation Protection The PPF account is not inflation protected, which means whenever inflation is above the current guaranteed interest rate of 8.70 per cent; the deposit earns no real returns. However, when the inflation rate is below 8.70 per cent, it does manage a positive real rate of return. Guarantees The interest rates on this deposit are notified every year before April 1, and is aligned with G-Sec rates of similar maturity, with a spread of 0.25 per cent. Currently, the interest rate on PPF deposits is 8.70 per cent per annum which is guaranteed for the deposits made in financial year 2015-16. Public Provident Fund Savings & Investment Yearbook48 Investment Objective and Risks The primary objective of saving in the PPF account is to avail tax deduction on deposits, guaranteed returns on investment and tax free withdrawal on maturity. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  57. 57. Savings & Investment Yearbook 49 Public Provident Fund Features ELIGIBILITY You nneed tto bbe aa RResident IIndian ENTRY AGE No aage iis sspecified ffor aaccount oopening INVESTMENTS Minimum: `500 pper aannum Maximum: `1.5 llakh pper aannum A mmaximum oof 112 ddeposits aallowed iin aa ffinancial yyear INTEREST 8.70 pper ccent ccompounded aannually TENURE 15 yyears On ccompletion oof 115 yyears, tthe aaccount ccan bbe eextended bby 55 yyears The PPPF aaccount mmatures aafter 115 yyears bbut tthe ccontribution hhas tto bbe mmade ffor 16 yyears iin aall. TThe 115-yyear pperiod iis ccalculated ffrom tthe ffinancial yyear ffollowing the ddate oon wwhich tthe aaccount iis oopened. EEffectively tthe PPPF aaccount mmatures on tthe ffirst dday oof tthe 117th yyear ACCOUNT HOLDING CATEGORIES Individual Minor tthrough tthe gguardian NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  58. 58. Liquidity The PPF is liquid, despite the 15-year lock-in stipulated with this account. The liquidity is offered in the form of loans from the third year and withdrawals subject to conditions from the seventh year. Credit Rating As the PPF is backed by the Government of India, it does not require any commercial rating. Exit Option Premature closure of a PPF account is not permissible except in case of death of the account holder. Other risks Savings in this product is completely risk free because of the government-backing. Public Provident Fund Savings & Investment Yearbook50 Loan available from the third year of opening the account to the sixth year, wherein the loan amount will be up to a maximum of 25 per cent of the balance in the account at the end of the first financial year. However, the loan has to be repaid with interest within 36 months. For loans before Decemeber 1, 2011, the interest rate is 1 per cent and for loans thereafter, it is 2 per cent. One withdrawal during a financial year which is up to 50 per cent of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year, whichever is lower. For example, if the account is opened in 2010-11, and the first withdrawal is made during 2016-17, the amount one can withdraw is limited to 50 per cent of the balance as on March 31, 2013, or March 31, 2016, whichever is lower. Thereafter, one withdrawal every year is permissible. The balance amount in the PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  59. 59. Tax Implications The sum invested in PPF account is eligible for tax deduction under Section 80C subject to a maximum savings of `1.5 lakh in a financial year. On maturity, the entire amount including the interest is tax free. The deposit is also exempt from wealth tax. Where to Open an Account You can open the account at various places such as: Any head post office or general post office State Bank of India or branches of its associated banks like the State Bank of Mysore Branches of nationalised banks such as Bank of Maharashtra are permitted to collect direct taxes Private sector banks such as ICICI Bank How to Open an Account Once you have selected the location to open an account you will need the following documents: An account opening form. Two passport size photographs Address and identity proof such as copy of the passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, voter’s identity card or ration card Carry original identity proof for verification at the time of account opening Choose a nominee and get a witness signature to complete the formalities to get started Public Provident Fund Savings & Investment Yearbook 51 GOING ONLINE Online access to the PPF account is yet to completely take-off. Some banks such as SBI and ICICI offer online access to PPF accounts opened through them. With this facility you can make online deposits to your account. PPF accounts opened at post offices do not have online access facility yet Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  60. 60. Public Provident Fund Savings & Investment Yearbook52 TIPS AND STRATEGIES Exhaust the full investment permissible to avail tax deduction on the first day of each financial year. This will ensure that your yearly investment earns interest for the complete year and enjoys the compounding effect of interest in PPF and accumulates significant sums over the long-term. By investing the full sum (See: Making the most of PPF) each year into PPF will accumulate `36.75 lakh at the end of the 15-year PPF tenure of which the investment contribution is only `19.5 lakh; the rest is the advantage of compounding. Deposit the PPF contribution between the 1st and 5th of the month to earn interest for the whole month. How to Operate a Deposit You need a pay-in slip with the initial account opening sum to be credited into your account You get a PPF passbook with your photo affixed stating the nominee you have selected Types of Transactions Cheque Money transfer Electronic clearing service (ECS) Points to Ponder Minimum sum needed to start an account Penal provisions in case of loans and withdrawals The PPF account rules can be read in the passbook. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  61. 61. Public Provident Fund Savings & Investment Yearbook 53 Making the most of PPF Annual Interest Year end Year Deposit (`) earned (`) Balance 2003-04 1,00,000 8,000 1,08,000 2004-05 1,00,000 16,640 2,24,640 2005-06 1,00,000 25,971 3,50,611 2006-07 1,00,000 36,049 4,86,660 2007-08 1,00,000 46,933 6,33,593 2008-09 1,00,000 58,687 7,92,280 2009-10 1,00,000 71,382 9,63,663 2010-11 1,00,000 85,093 11,48,756 Apr-Nov 2011 1,00,000 66,600 13,15,356 Dec-2011 to Mar-2012 1,00,000 37,748 13,54,549 2012-13 1,00,000 1,24,551 15,39,907 2013-14 1,00,000 1,42,672 17,82,579 2014-15 1,50,000 1,68,134 21,00,714 2015-16 1,50,000 1,95,812 24,46,526 2016-17 1,50,000 2,25,898 28,22,424 2017-18 1,50,000 2,58,601 32,31,024 2018-19 1,50,000 2,94,149 36,75,174 Interest rate from 2003-04 to November 2011: 8%; Dec-2011 to March 2012: 8.6%; April 2012 to March 2013: 8.8%; From April 2013: 8.7% The PPF is a good long-term accumulation instrument. Over a 16-year period investing the full sum to claim tax deduction under Section 80C each year from 2003-4 would be worth `36.75 lakh Public Provident Fund over the years 2015-16 2014-2015 2013-2014 2012-2013 PPF 8.7 8.7 8.7 8.8 All figures in per cent Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  62. 62. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  63. 63. Savings & Investment Yearbook 55 National Savings Certificate (Series VIII & IX) To have the cake and eat it too is a popular figure of speech, which is true when it comes to NSC investments. You can have the best of both the worlds, with assured returns and tax benefits on investment. If planned well, one can create a regular income stream using this instrument. 8 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  64. 64. The National Savings Certificate (NSC) is a popular and safe small savings instrument that combines tax-savings with guaranteed returns. This scheme is backed by the government, and is one of the safest investment options available at post offices. The distribution reach of post office has added to the popularity of this scheme and is much sought after across all investing classes. Capital Protection The capital in the NSC is completely protected as the scheme is backed by the Government of India, making it totally risk-free with guaranteed returns. Inflation Protection The NSC is not inflation protected, which means whenever inflation is above the current guaranteed interest rate; the deposit earns no real returns. However, when the inflation rate is below the guaranteed interest rate, it does manage a positive real rate of return. Guarantees The interest rate on the NSC is guaranteed. Currently, the interest rate on NSC is 8.5 per cent on the 5-year option and 8.8 per cent per annum on the 10-year option, compounded half yearly. The interest rates in this scheme are notified every year before April 1, and is aligned with G-Sec rates of similar maturity, with a spread of 0.25 per cent on the 5-year option and 0.5 per cent on the 10-year option. National Savings Certificate (Series VIII & IX) Savings & Investment Yearbook56 Investment Objective and Risks The main objective of investing in the NSC is to avail tax deduction on deposits and guaranteed returns on investment. The five and ten year tenure is used by many to create a regular monthly income stream in retirement. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  65. 65. Savings & Investment Yearbook 57 National Savings Certificate (Series VIII & IX) Features ELIGIBILITY You nneed tto bbe aa RResident IIndian tto bbuy tthese ccertificates ENTRY AGE No aage iis sspecified ffor aaccount oopening INVESTMENTS Minimum: `100 pper aannum Certificates aare aavailable iin ddenominations oof `100, `500, `1,000, `5,000 and `10,000 INTEREST 8.5 pper ccent ccompounded hhalf yyearly oon 55-yyear ttenure 8.8 pper ccent ccompounded hhalf yyearly oon 110-yyear ttenure TENURE 5- aand 110-yyears ACCOUNT HOLDING CATEGORIES Individual Joint Minor tthrough tthe gguardian NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  66. 66. Liquidity The NSC is liquid, despite the 5- and 10-year stipulated lock-in. The liquidity is offered in the form of loans. Credit Rating The NSC is government backed and does not require any commercial rating. Exit Option Premature encashment is possible after three years or in case of death of the certificate holder. Other risks Savings in this product is risk free because of the government- backing. Tax Implications The sum invested in an NSC is eligible for tax deduction under Section 80C up to the `1.5 lakh limit stipulated in a financial year including the accrued interest on existing certificates. The interest earned on NSC on a yearly basis is added to the total income under the head ‘Income from other sources’ and the same can be claimed as deduction under Section 80C, making the interest tax-free. But if the accrued interest is not taxed every year on an accrual basis then the entire income is taxable on maturity. National Savings Certificate (Series VIII & IX) Savings & Investment Yearbook58 You can pledge the NSC certificates to obtain loans. The amount and rate at which the loan is permitted depends on the lending institution. Risks associated with loss or mutilation of certificate exists, for which a duplicate certificate can be issued on furnishing an indemnity bond in a format prescribed by the post office. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  67. 67. Where to Buy Certificates can be bought from any head post office or general post office. How to Buy Once you have decided on the sum that you wish to invest: You need to fill the NSC application form available at the post office Carry original identity proof for verification at the time of buying You can buy the certificate with cash, cheque or demand draft drawn in favour of the postmaster of the post office from where the NSC is being bought Choose a nominee and get a witness signature to complete the formalities when buying the certificate Points to Ponder Certificates are encashable at any post office in India provided one has obtained transfer of the certificate to the desired post office National Savings Certificate (Series VIII & IX) Savings & Investment Yearbook 59 GOING ONLINE Currently there is no facility for online access to the NSCs. As a pilot project, a few years ago the NSDL and the postal department had got into issuing NSC in a dematerialised format allowing for online access of the same through online broking websites. This facility is not available anymore. However, efforts are on to reconsider issuing NSC in demat form for the convenience and benefit of investors National Savings Certificate 2015-2016 2014-2015 5-year NSC 8.5 8.5 10-year NSC 8.8 8.8 Prior to April 2012, NSC was a six year instrument All figures in per cent Certificates are transferable from one person to another person before maturity. Facility of purchase or payment to the holder of power of attorney. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  68. 68. National Savings Certificate (Series VIII & IX) Savings & Investment Yearbook60 TIPS AND STRATEGIES The assured return on NSC can be used to create an income ladder. Certificates can be bought every month or quarter for appropriate denominations, which on maturity will act as a steady income stream. For instance, someone retiring in 2020 can create an income ladder by investing a fixed sum every month from August 2015. Some people use this ladder effect to create an income stream that will last 10-15 years by timing NSC maturity and re-investment to create an assured income in retirement. Illustration for a 6-month income stream on a 5-year NSC Investment Amount (`) Maturity Amount (`) April 2015 5,000 April 2020 `7,581 May 2015 5,000 May 2020 `7,581 June 2015 5,000 June 2020 `7,581 July 2015 5,000 July 2020 `7,581 August 2015 5,000 August 2020 `7,581 September 2015 5,000 September 2020 `7,581 Certificates are transferable across post offices Interest income is taxable but no TDS certificate is issued Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  69. 69. Savings & Investment Yearbook 61 Kisan Vikas Patra Kisan Vikas Patra Some people say the quickest way to double your money is to fold it in half and put it back in your pocket. However, for ease of understanding among investors there exists a post office savings scheme which just does that; doubles your investment after a fixed term. 9 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  70. 70. The Kisan Vikas Patra (KVPs) is a popular and safe small savings instrument that doubles the invested money in 8 years and 4 months. This scheme is backed by the government, which was relaunched by the government on November 18, 2014. Capital Protection The capital in the KVP is completely protected as the scheme is backed by the government of India, making it risk-free with guaranteed returns. Inflation Protection The KVP is not inflation protected, which means whenever inflation is above the current guaranteed interest rate of 8.7 per cent; the deposit earned no real returns. However, when the inflation rate is under 8.7 per cent, it can manage to give a positive real rate of return. Guarantees The interest rate in the KVP is guaranteed and is 8.7 per cent compounded yearly. Liquidity The KVP has liquidity, despite the 8 years and 4 months that it takes to double the deposit. The liquidity is offered in the form of loans and withdrawals subject to conditions. One can pledge the KVP to take a loan from any bank or financial institution. Kisan Vikas Patra Savings & Investment Yearbook62 Investment Objective and Risks The main objective of the KVP is to double the sum deposited in 8 years and 4 months. The simplicity of doubling the invest- ment is easy for every investor to understand, the government backing and guarantee make it a preferred route of invest- ment for small savers. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  71. 71. Savings & Investment Yearbook 63 Kisan Vikas Patra Features ELIGIBILITY One hhas tto bbe aa RResident IIndian tto ppurchase tthis pproduct ENTRY AGE No aage llimit iis mmentioned Certificate ccan bbe ppurchased bby aan aadult ffor hhimself oor oon bbehalf oof aa mminor or bby ttwo aadults MINIMUM INVESTMENTS Minimum: `1000 pper aannum Maximum: TThere iis nno uupper llimit Certificates aare aavailable iin ddenominations oof `1,000, `5,000, `10,000 aand `50,000 INTEREST 8.7 pper ccent ccompounded yyearly TENURE 8 yyears aand 44 mmonths OTHER ASPECTS Premature eencashment aallowed ffor iinvestors `100 wwould ddouble uup tto `200 iin 88 yyears aand 44 mmonths ACCOUNT HOLDING CATEGORIES Individual Joint Minor tthrough tthe gguardian NOMINATION Facility iis aavailable ffor eexisting iinvestors Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  72. 72. Credit Rating As the KVP is backed by the government of India, it does not require any commercial rating. This holds good for investors as well. Exit Option Premature withdrawal is permitted at a cost for investors. Other Risks There is no risk associated with this investment for investors. Kisan Vikas Patra Savings & Investment Yearbook64 The facility of pledging the KVP to borrow is allowed and one can take loans against the KVP from banks and financial institutions. Premature closure of the KVP is permitted wherein a pre-fixed value of the KVP is paid as indicated in the table. Amount Paid Per cent of on `1,000 Tenure face value (%) face value (`) 2 yrs 6 mths or more but less than 3 yrs 20.1 1,201 3 yrs more but less than 3 yrs 6 mths 24.6 1,246 3 yrs 6 mths or more but less than 4 yrs 29.3 1,293 4 yrs or more but less than 4 yrs 6 mths 34.1 1,341 4 yrs 6 mths or more but less than 5 yrs 39.1 1,391 5 yrs or more but less than 5 yrs 6 mths 44.3 1,443 5 yrs 6 mths or more but less than 6 yrs 49.7 1,497 6 yrs or more but less than 6 yrs 6 mths 55.3 1,553 6 yrs 6 mths or more but less than 7 yrs 61.1 1,611 7 yrs or more but less than 7 yrs 6 mths 67.1 1,671 7 yrs 6 mths or more but less than 8 yrs 73.3 1,733 8 yrs or more but less than 8 yrs 7 mths 79.8 1,798 Liquidity on premature withdrawal Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  73. 73. Tax Implications For existing investors there is no tax benefit on the deposit or the interest that it earns. The yearly interest accrued in the KVP is taken as ‘Income from other sources’ to compute income tax. However, there is no TDS deducted. Where to Buy One can buy the KVP at any head post office or general post office or at any designated nationalised banks. How to Buy Once you decide on the sum to invest You have to fill the KVP application form available at the post office or the designated banks. Original identity proof for verification at the time of buying is required. You can buy the certificate with cash, cheque or demand draft drawn in favour of the postmaster of the post office from where the KVP is bought. You have to choose a nominee and get a witness signature to complete the formalities when buying this product. Points to Ponder The KVP can be encashed at any post office or nationalised bank in India provided one has obtained transfer of the cer- tificate to the desired post office or bank for existing investors in this instrument. KVPs are transferable across post offices and designated banks for existing investors. Interest income is taxable but no TDS certificate is issued. Kisan Vikas Patra Savings & Investment Yearbook 65 GOING ONLINE Financial products offered at the post office have not gone online as yet. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  74. 74. Kisan Vikas Patra Savings & Investment Yearbook66 TIPS AND STRATEGIES The doubling of money in a KVP is used to accumulate funds and create an income ladder. KVPs are bought every month or quarter for appropriate denominations, which on maturity work as a steady income stream which is twice of what one deposited. Some people use this ladder effect to create an income stream that last 10-15 years by timing KVP maturity and re-investing the same to create an assured income in retirement. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  75. 75. Savings & Investment Yearbook 67 Sukanya Samriddhi Yojana Investments in the Sukanya Samriddhi Scheme are already eligible for deduction under Section 80C. All payments to the beneficiaries, including interest payment on the deposit, will also be fully exempt. - Finance Minister, Arun Jaitley, in his Budget speech 10 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  76. 76. The Sukanya Samriddhi Yojana (SSY) is a tax-free small savings scheme for the girl child. It was launched on January 22, 2015. Parents or the legal guardian of a girl child of age ten years or less can open an SSY account in the name of the girl child in designated branches of public sector banks or in a post office, with a minimum amount of `1,000. Entry Age Parents or legal guardian of a girl child, ageing ten years or less, can open an SSY account. Minimum Investment The account can be opened with a minimum deposit of `1,000. Failure to make payments as per the chosen frequency can lead to the deactivation of the account. It can then be revived only after paying a penalty of `50 along with the missing payments. Deposits can be made multiple times in a year, with an upper limit of `1,50,000. Capital Protection Since the scheme offers a relatively fixed rate of interest, the capital is adequately protected. Inflation Protection Since the returns are linked to the government bond yield, there is no assured inflation protection. Sukanya Samriddhi Yojana Savings & Investment Yearbook68 Investment Objective and Risks The Sukanya Samriddhi Yojana is a special initiative for the girl child. The scheme aims to encourage savings for the girl child. The potential risk is that there is no inflation protection, though the capital is adequately protected. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  77. 77. Savings & Investment Yearbook 69 Sukanya Samriddhi Yojana Features ELIGIBILITY You nneed tto bbe aa rresident IIndian aand pparent/legal gguardian oof tthe ggirl cchild. ENTRY AGE Parents oor llegal gguardian oof aa ggirl cchild, aageing tten yyears oor lless, ccan oopen aan SSY aaccount. ACCOUNT OPENING FEE No ffee. AA mminimum ccash ddeposit oof `1,000 iis rrequired tto oopen aan aaccount ACCOUNT MAINTENANCE AND CHARGES Failure tto mmake ppayments aas pper tthe cchosen ffrequency ccan llead tto tthe ddeactiva- tion oof tthe aaccount. A ddeactivated aaccount ccan tthen bbe rrevived oonly aafter ppaying aa ppenalty oof `50 along wwith tthe mmissing ppayments. INTEREST The iinterest rrate iis tto bbe 775 bbasis ppoints oover tthe tten-yyear ggovernment bbond yield oof tthe pprevious ffinancial yyear. OTHER FEATURES OFFERED The sscheme wwill hhave tthe eexempt-eexempt-eexempt ((EEE) mmodel. The aaccount ccan bbe oopened aat aany ppost ooffice iin IIndia ddoing tthe ssavings bbank work oor aat aany bbranch oof aan aauthorised ccommercial bbank. The ccorpus wwill ccontinue tto eearn iinterest iif tthe aaccount iis nnot cclosed oon mmaturity. TENURE The aaccount wwill mmature oon tthe ccompletion oof 221 yyears ffrom tthe ddate oof oopening of tthe aaccount oor aat tthe ttime oof mmarriage oof tthe aaccount hholder oon aattaining 118 yyears of aage, wwhichever iis eearlier. Up tto 550 pper ccent oof tthe ccorpus ccan bbe wwithdrawn oonce tthe ggirl tturns 118. ACCOUNT HOLDING CATEGORIES Girl cchild uunder tten yyears tthrough tthe pparents oor tthe llegal gguardian NOMINATION Not aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  78. 78. Liquidity The contributions under the SSY cannot be withdrawn before the girl attains 18 years of age. Therefore, the minimum lock-in period is eight years. As of now there is no loan facility available. Guarantees The interest rate under the SSY is to be 75 basis points over the ten-year government bond yield of the previous financial year. At present, the deposit will fetch a yearly interest rate of 9.2 per cent. Tax Implications The scheme will have the exempt-exempt-exempt (EEE) model, where the deposits, the interest earned as well as the maturity amount will be tax-free. Exit Options The account will mature on the completion of 21 years from the date of opening of the account or at the time of marriage of the account holder on attaining 18 years of age, whichever is earlier. However, up to 50 per cent of the corpus can be withdrawn once the girl turns 18. The corpus will continue to earn interest if the account is not closed on maturity. Where to Open the Account The account can be opened at any post office in India doing the savings bank work or at any branch of a commercial bank authorised by the central government to open an account under Sukanya Samriddhi Account Rules, 2014. Sukanya Samriddhi Yojana Savings & Investment Yearbook70 The SSY account can be opened only for the girl child and the girl child must not be older than ten years. Also, the minimum lock-in period is eight years. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  79. 79. How to Open the Account The parent/guardian can approach any post office or bank with the birth certificate of the girl child, along with the ID and address proof of the parent/guardian. Points to Ponder The depositor can open only one account in the name of one girl child and a maximum of two accounts in the name of two different children. However, the guardian can open the third account in the case of birth of twin girls as the second birth, or if the first birth itself results into three girl children. Sukanya Samriddhi Yojana Savings & Investment Yearbook 71 TIPS AND STRATEGIES The SSY could be a good avenue for tax saving It has the benefit of the EEE tax model Attractive yield makes it stand out in debt investments The scheme keeps earning interest even post maturity Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  80. 80. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  81. 81. Savings & Investment Yearbook 73 Senior Citizen Saving Scheme George Foreman said; “The question isn’t at what age I want to retire, it’s at what income.” He could not have been more right about income in retirement. Defined pensions are a lot better to look forward to in retirement than anything else. 11 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  82. 82. Retirement brings with itself several complications and doubts, but there are savings products that are safe and ensure guaranteed retirement income. The Senior Citizen Savings Scheme (SCSS), launched in 2004, is a deposit scheme introduced by the Government of India to provide guaranteed returns to senior citizens through a safe investment. This scheme ensures a regular income stream for senior citizens in retirement. Capital Protection The capital in the SCSS is completely protected as the scheme is backed by the Government of India, making it totally risk-free with guaranteed returns. Inflation Protection The SCSS is not inflation protected, which means whenever inflation is above the current interest rate; the deposit earns no real returns. However, when the inflation rate is below the current interest rate, it does manage a positive real rate of return. Guarantees The interest rates on this scheme are notified every year before April 1, which is aligned with G-Sec rates of similar maturity, with a spread of 1 per cent. Currently, the interest rate in the SCSS deposit is 9.30 per cent per annum compounded quarterly. Liquidity The SCSS is liquid, despite the 5-year stipulated lock-in. The liquidity is offered in the form of withdrawals subject to conditions and penalties. Senior Citizen Saving Scheme Savings & Investment Yearbook74 Investment Objective and Risks The main objective of the SCSS is to provide an assured 9.30 per cent return paid every quarter to senior citizens which helps them create a guaranteed regular income flow. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  83. 83. Savings & Investment Yearbook 75 Senior Citizen Saving Scheme Features ELIGIBILITY You nneed tto bbe aa rretired RResident IIndian tto oopen aan aaccount ENTRY AGE 60 yyears 55 yyears ffor tthose wwho hhave rretired oon ssuperannuation oor uunder aa vvoluntary oor special vvoluntary sscheme The rretired ppersonnel oof DDefence SServices ((excluding CCivilian DDefence Employees) sshall bbe eeligible tto iinvest iirrespective oof tthe aage llimits ssubject tto tthe fulfilment oof sspecified cconditions INVESTMENTS Minimum: `1,000 Maximum: `15 llakh Deposits hhave tto bbe iin mmultiples oof `1,000 INTEREST 9.30 pper ccent pper aannum ccompounded qquarterly The iinterest iis ppaid oon MMarch 331, JJune 330, SSeptember 330 aand DDecember 331, each yyear TENURE 5 yyears wwhich ccan bbe eextended bby 33 mmore yyears ACCOUNT HOLDING CATEGORIES Individual Joint wwith sspouse NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  84. 84. Credit Rating As the SCSS is backed by the Government of India, it does not require any commercial rating. Exit Option Premature closing of the account is permitted with penalty. Other Risks There is no risk associated with this investment which is why the investment is totally risk-free. Tax Implications The sum invested in the SCSS on or after April 1, 2007 is eligible for tax deduction under Section 80C of the Income Tax Act. However, the interest earned on the deposit is fully taxable and tax is deducted at source (TDS) only if the total interest in a year is above `10,000. However, if the income is not taxable, one has to provide form 15H or 15G so that no tax is deducted at source. Senior Citizen Saving Scheme Savings & Investment Yearbook76 GOING ONLINE If one has an online bank account with a bank which also offers SCSS; the two can be linked which enables online access to the SCSS. The facility of pledging the deposit in the SCSS account to obtain loans is not permitted as it defeats the purpose of regular income. Premature withdrawal or closure of the SCSS account is permitted after completion of one year from the date of opening the account after deducting a penalty for early withdrawal or closure that varies from 1-1.5 per cent depending on the completed tenure of the account. If the account is closed after the first year and before the end of the second year, an amount equal to 1.5 per cent of the deposit shall be deducted as penalty. If the account is closed on or after the second year, an amount equal to 1 per cent of the deposit shall be deducted. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  85. 85. Where to open an Account Any head post office or general post office. Select branches of several designated nationalised banks: State Bank of India, State Bank of Hyderabad, State Bank of Indore, State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Saurashtra, State Bank of Mysore, State Bank of Travancore, Allahabad Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Punjab National Bank, Syndicate Bank, UCO Bank, Union Bank of India, United Bank of India, Vijaya Bank and ICICI Bank. How to Open an Account Once you have selected the bank to open the SCSS account, you will first need to open a savings bank account and you will need the following documents: An account opening form which the bank will provide Two passport size photographs Address and identity proof such as copy of the passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, voter’s identity card or ration card Carry original identity proof for verification at the time of account opening Points to Ponder Portability of the account from one bank to another ECS transfer of interest to the savings bank account Penal provisions in case of early closure of the account Senior Citizen Saving Scheme Savings & Investment Yearbook 77 The SCSS rules can be found in the passbook. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  86. 86. Senior Citizen Saving Scheme Savings & Investment Yearbook78 TIPS AND STRATEGIES The guaranteed interest from this scheme can be used to create income streams to manage cash flows in retirement. Extend the SCSS account on completion of five years by an additional three years Split the SCC account into two individuals accounts for self and spouse to reduce the impact of early closure of an account in case of emergencies It is wise to foreclose the account and invest in a bank savings account whenever banks offer higher interest rate on long-term deposits Payout on the SCSS Deposit Amount of Deposit (`) Quarterly interest (`) 10,000 230 25,000 575 40,000 920 70,000 1,610 1,00,000 2,300 2,00,000 4,600 5,00,000 11,500 8,00,000 18,400 11,00,000 25,300 15,00,000 34,500 SCSS over the years 2015-2016 2014-2015 2013-2014 5-year SCSS 9.3 9.2 9.2 All figures in per cent Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  87. 87. Savings & Investment Yearbook 79 Post Office Monthly Income Scheme Though the postal system is finding few takers with the advent of email and other forms of communication, the guarantees offered by post office small savings make them still one of the most sought after locations for financial products. 12 Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  88. 88. The Post Office Monthly Income Scheme (POMIS) is a guaranteed return investment available at the post office. On the deposit that you make with the post office, you get an assured monthly income. Currently, one earns an 8.4 per cent interest per year on the deposit, which is paid every month and hence the name monthly income scheme. Once you make the deposit you get the interest payout each month from the date of making the investment, not from start of the month. Capital Protection The capital in the POMIS is completely protected as the scheme is backed by the Government of India, making it totally risk-free with guaranteed returns. Inflation Protection The POMIS is not inflation protected, which means whenever inflation is above the current guaranteed interest rate of 8.40 per cent; the return from the scheme earns no real returns. However, when the inflation rate is below 8.40 per cent, it does manage a positive real rate of return. Guarantees The interest rate in the POMIS is guaranteed and is currently 8.40 per cent per annum and paid out monthly. The interest rates on this scheme are notified every year before April 1, and is aligned with G-Sec rates of similar maturity, with a spread of 0.25 per cent. Post Office Monthly Income Scheme Savings & Investment Yearbook80 Investment Objective and Risks The main objective of the POMIS is to provide an assured 8.4 per cent returns paid monthly to the account holders and help them create a guaranteed regular income. Though it offers no tax incentive, it is a preferred instrument amongst small savers for the government backing that this product offers. Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.
  89. 89. Savings & Investment Yearbook 81 Post Office Monthly Income Scheme Features ELIGIBILITY You nneed tto bbe aa RResident IIndian ppreferably wwith aa ppost ooffice ssavings aaccount ENTRY AGE No aage llimit iis mmentioned Minor aabove 110 yyears oof aage ccan oopen aan aaccount iin ttheir oown nname ddirectly There iis aa llimit oof `3 llakhs sset ffor mminors tto oopen tthis aaccount wwith aa gguardian, which iis nnot cclubbed wwith tthe iinvestment llimit aapplicable tto tthe gguardian aas aan independent iinvestor INVESTMENTS Minimum: `1,500 Maximum: `4.5 llakh iin aa ssingle aaccount Maximum: `9 llakh iin aa jjoint aaccount INTEREST 8.4 pper ccent pper aannum ppaid mmonthly TENURE 5 yyears ACCOUNT HOLDING CATEGORIES Individual Joint Minor tthrough tthe gguardian NOMINATION Facility iis aavailable Subscription copy of RAJESH BHUTRA [rajeshbhutra@ymail.com]. Redistribution prohibited.

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