Kalyani Portfolio Services Pvt. Ltd

Indian Post offers several Savings Schemes which are safe, ( earlier tax rebates, now are interest earned in these schemes are taxed under the income head of Income from Other Sources ) and relatively more interest rates than bank deposits.

Benefits of investing in post office schemes

These schemes are offered by the Government of India.
Safe, secure and risk-free investment options.
No Tax Deduction at Source (TDS).
Nomination facility is available.
Nomination can be changed at any time
The instruments are transferable to any Post Office anywhere in India.
Attractive rates of interest.

TYPES OF POST OFFICE SCHEMES

Following are schemes that are available at post office:

(1) Recurring Deposit Account (RDA):

It is one of the best investment option for the low income groups. Basically it is a banking service offered by Department of post, Government of India at all post office counters in the country.

Amount of Investments:

Minimum investment- Rs. 10 p.m. or any amount in multiples of Rs. 5
Maximum investment- No maximum limit

Payment Terms:

The deposit shall be paid as monthly installments and each subsequent monthly installment shall be made before the end of the calendar month and shall be equal to the first deposit

Maturity Terms:

One withdrawal is allowed after one year of opening a post-office RDA on meeting certain conditions. You can withdraw up to half the balance lying to your credit at an interest charged at 15%. The withdrawal or the loan may be repaid in one lump sum or in equal monthly installments. Premature closure is allowed on completion of three years from the date of opening and in such case, interest is payable as per the rate applicable for the Post Office Savings Bank Account. After maturity of the account, it can be continued for a further period of 5 years with or without further deposits. During this extended period, the account can be closed at any time.

Returns:

The post-office recurring deposits offer a fixed rate of interest, currently at 7.5 per cent per annum compounded quarterly.

Tax Considerations:

Interest is liable to tax
Balance exempt from wealth-tax
No TDS from interest

Other considerations:

Account can be continued for another 5 years on year to year basis with interest.
Rebate is admissible on advance payment of deposits (6 and 12 months).
Nomination facility is available.

(2) Post Office Monthly Income Scheme (MIS)

MIS provides a source of regular income on a long term basis. This scheme is, therefore, more beneficial for retired persons. Basically it is meant for investors who want to invest a sum amount initially and earn interest on a monthly basis for their livelihood.

Amount of Investments:

Lock in period:

The duration of MIS is six years. However, premature closure of the account is permitted any time after the expiry of a period of one year of opening the account. Investors can withdraw money before three years, but at a discount of 2%. Closing of account after three years have 1% deduction.

Returns:

The post-office MIS gives a return of 8% plus a bonus of 10 per cent on maturity. However, this 10 per cent bonus is not available in case of premature withdrawals. No bonus shall be paid on deposits made in accounts opened on or after 13 Feb, 2006.

Tax Considerations:

Interest is liable to tax
Balance exempt from wealth-tax
No TDS from interest

Other considerations:

Only one deposit is permitted
Provides a secured monthly pension
Nomination facility is available
Only individuals can open the account (either single or joint)

(3) Time Deposit:

Time Deposit is a banking service similar to a Bank Fixed Deposit offered by Department of post, Government of India at all post office counters in the country. This scheme is meant for those investors who want to deposit a lump sum of money for a fixed period. Investor gets a lump sum (principal + interest) at the maturity of the deposit. Time Deposit scheme offers a lower, but safer, growth in investment.

Amount of Investment:

The minimum investment in a post-office time deposit is Rs 200 and there is no prescribed upper limit on your investment. Account can be opened in multiples of Rs. 50 in single or joint names.

Liquidity:

Time Deposits can be made for the period of 1 year, 2 years, 3 years and 5 years.If amount is withdrawn after 6 months but before 1 year from date of deposit, no interest will be paid. If the amount is withdrawn prematurely after 1 year from the date date of deposit, interest will be paid at 2% less than the rate of interest specified for the period for which the deposit has been held.

Returns:

This investment option pays annual interest rates between 6.25 and 7.5 per cent, compounded quarterly.

Tax Considerations:

Interest is liable to tax
Balance exempt from wealth-tax
No TDS from interest

Other considerations:

Accounts can be opened in name of minor/person of unsound mind
One can take a loan against a time deposit with the balance in your account pledged as security for the loan.
Nomination facility is available

(4) Senior Citizen Scheme:

A new savings scheme called "Senior Citizens Savings Scheme" has been started with effect from August 2, 2004. Citizens of 60 years of age and above are eligible to invest. Single or joint account (with spouse only) can be opened. Citizens who have retired under a voluntary or a special voluntary retirement scheme and have attained the age of 55 years are also eligible, subject to specified conditions.

Maturity Period:

Maturity period of the deposit will be five years, extendable by another three years. Initially the scheme will be available through designated post offices through out the country. However, the depositor may be permitted to withdraw the deposit and close the account at any time after the expiry of one year from the date of opening of the account subject to the following conditions:

If the account is closed after the expiry of 1 year but before the expiry of 2 years from the date of opening of the account, an amount equal to one and half percent of the deposit shall be deducted.
If the amount is closed on or after the expiry of 2 years from the date of opening of the account, an amount equal to 1% of the deposit shall be deducted.

Amount of Investment:

The minimum investment is Rs. 1000 and in multiples of Rs.1000 subject to a maximum of Rs.15 lakh.

Returns:

The deposit will carry an interest of 9% per annum.

Liquidity:

Premature withdrawal after a period of one year will be allowed, subject to some deductions.

Tax consideration:

Interest is liable to tax.

(5) Kisan Vikas Patra

This scheme is available at all post offices and brokers/agents of UTI, LIC and government schemes.

Amount of Investment:

No limit ( available in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, Rs. 10000 and Rs 50000)

Liquidity:

Maturity period of certificate is 8 years and 7 months.
Premature encashment is possible after 2 and half years.

Returns:

Money doubles in 8 years and 7 months.

Tax Considerations:

Interest is not eligible for any tax concession.
No TDS from interest.

Other considerations:

Can be purchased from any post office
Interest is paid only on maturity and cannot be claimed prior to maturity
Can be purchased jointly by two adults
It has been declared as "public security" under the provisions of the Mumbai Public Trust Act, 1950
Can be purchased in name of minor.

(6) National Savings Certificate

National Savings Certificate, popularly known as NSC, is a time-tested tax saving instrument that combines adequate returns with high safety. Amount Of Investment

National Savings Certificates are available in the denominations of Rs. 100, Rs 500, Rs. 1000, Rs. 5000, & Rs. 10,000. There is no maximum limit on the purchase of the certificates. Maturity Period

Period of maturity of a certificate is six years. Presently, maturity value of a certificate of Rs. 100 denomination is Rs. 160.10. Maturity value of a certificate of any other denomination is at proportionate rate. Premature encashment of the certificate is not permissible except at a discount in the case of death of the holder(s), forfeiture by a pledgee and when ordered by a court of law.

(7) Public Provident Fund (PPF)

Amount Of Investment

The minimum deposit is 500/- p.a
The maximum is Rs. 70,000/- p.a

Rate of Interest

The rate of interest is 8% compounded annually

Other Features

The Public Provident Fund Scheme is a statutory scheme of the Central Government of India.
The Scheme is for 15 years.
The deposit can be in lumpsum or in convenient installments, not more than 12 Installments in a year or two installments in a month subject to total deposit of Rs.70,000/-.
It is not necessary to make a deposit in every month of the year. The amount of deposit can be varied to suit the convenience of the account holders.
The account in which deposits are not made for any reasons is treated as discontinued account and such account can not be closed before maturity.
The discontinued account can be activated by payment of minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year.
Account can be opened by an individual or a minor through the guardian.
Joint account is not permissible.
Those who are contributing to GPF Fund or EDF account can also open a PPF account.
A Power of attorney holder can neither open or operate a PPF account.
The grand father/mother cannot open a PPF behalf of their minor grand son/daughter.
The deposits shall be in multiple of Rs.5/- subject to minimum amount of Rs.500/-.
The deposit in a minor account is clubbed with the deposit of the account of the Guardian for the limit of Rs.70,000/-.
No age is prescribed for opening a PPF account.
Interest is not contractual but rate is notified by Ministry of Finance, Govt. of India, at the end of each year.
The facility of first withdrawal in the 7th year of the account subject to a limit of 50% of the amount at credit preceding three year balance. Thereafter one Withdrawal in every year is permissible.
Pre-mature closure of a PPF Account is not permissible except in case of death.
Nominee/legal heir of PPF Account holder on death of the account holder can not continue the account, but account had to be closed.
The account holder has an option to extend the PPF account for any period in a block of 5 years on each time.
The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.
One withdrawal in each financial year is also admissible in such account.
The PPF scheme is operated through Post Office and Nationalized banks.
PPF account can be opened either in Post Office or in a Bank.
Account is transferable from one Post office to another and from Post office to Bank and from Bank to Post office.
Account is transferable from one Bank to another bank as well as within the bank to any branch.
Deposits in PPF qualify for rebate under section 80-C of Income Tax Act.
The interest on deposits is totally tax free.
Deposits are exempt from wealth tax.
The balance amount in PPF in PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability.
Nomination facility available.
Best for long term investment.