400509 SIP myths you must know!

Though the rate of interest on small savings instruments was reduced by the government over the past few years, these still remain an attractive proposition with crores of Indians.

They give you a guaranteed return amid pandemic-induced uncertainties. The returns are higher than that offered by banks.

All these instruments are backed by the government.

NSC
NSC is one of the best and safest investment instruments what Post Office has. Though it has a lock in period of 5 years, the interest rate is still a bit higher than 5-year FDs of different banks.

The current interest rate is 6.8%. NSC also offers you tax benefit under section 80C of the Income Tax Act. This is a good bet for those looking to build a corpus for the medium to long term.

Recurring Deposit
The post office also offers RDs with fixed time span of 5 years. One cannot open a RD for a term less than 5 years. The interest rate is 5.8%, compounding quarterly. The minimum contribution is as low as Rs 100, and, thereafter, in multiples of Rs 10.

The interest earned on an RD is paid on maturity along with the principal, though it attracts tax above certain limit. On the other hand, one can open an RD account for six months only in banks.

Senior citizens
Senior Citizen Savings Scheme is for senior citizens only and offers an interest rate of 7.4% per annum. An individual of the age of 60 years or more can open the account.

A depositor may operate more than one account in individual capacity or jointly with spouse. Premature closure is allowed after one year on deduction of an amount equal to1.5% of the deposit & after 2 years 1% of the deposit. This also have a tax benefit under section 80C of IT act.

PPF
Any person either from organised or unorganised sector can open a PPF account. This is the one of the best long-term savings instruments what a post office of banks have.

PPF account is locked for 15 years and then can be extended in a slab of 5 years.

PPF is completely tax free under section 80C of IT act. Current interest rate of PPF stands at 7.1%.

One can open a PPF account in bank also. But a person should have a single PPF account, more than one account is considered to be illegal and liable to closed.

Loan facility is available from the third year onwards and also premature withdrawal is possible from the 7th year. Experts feel PPF is the one of the best retirement planning instruments for every person.

KVP
Under Kisan Vikas Patra the amount invested doubles after 131 months. So, if you have deposited Rs 1 lakh it doubles to Rs 2 lakhs after 10 years and 11 months. The interest rate which enables such doubling is 6.9% per annum, which is compounded annually.

This is a good scheme for those looking at safety, and the returns which are better than bank deposits.

It also attracts tax benefits and still has the interest rate higher than bank FDs.

FD (5 yr)
Like banks, post offices also offers fixed deposits of 5-year tenure. The current interest rate is 6.7% inpost offices that is a bit higher than all the banks. Private lenders like YES or Indusind Bank offer 6.7%-6.75% in 5-year FDs.

The interest rates in PSU banks usually vary between 5.3% and 5.6%. Therefore, in post offices, one get at least 120 basic points higher returns.

One can also go for FDs of 1, 2, and 3-year tenure in post offices.

MIS
A person can open deposit with a minimum amount of Rs 1,000 per month. The maximum amount acceptable under the scheme is Rs 4.50 lakh in the case of individual accounts and Rs 9 lakh for joint accounts.

An individual can invest up to Rs 4.50 lakh in MIS including his share in joint accounts. The customer opening the deposit gets the benefit of regular monthly income at the interest rate of 6.6%. This rate is quite high with comparison to the bank RDs.

Sukanya Samriddhi
Many individual who have a girl child prefer Sukanya Samriddhi Yojona (SSY) while choosing tax-savings investments, the interest rate of which is 7.6%.

The minimum investment is Rs 250 in a financial year, and the maximum is Rs 1.5 lakh.

SSY matures 21 years from the date of opening the account or at the time of marriage of the girl child, whichever is earlier.

SSY is the best fit plan for every person if he/she has a girl child.

Savings account
Like banks, post offices also offer normal savings account with an interest rate of 4% irrespective of the amount.

But right now no bank offers you 4% interest rate if your balance is less than Rs 1 lakh.

So, if you plan to open a normal savings account, go to a post office.