32 Mins

What is Savings Plan?

Savings is something one does to achieve some long or short term goal. Savings can be a child not spending the pocket money given to him/her to buy something he/she likes later. Or a mother saving money in the kitchen in spices boxes to use it during emergencies. Or any one saving money in a bank or any savings plan to achieve their goals. Savings can be very subjective and ambiguous. So is the best saving plan.

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Core Mutual Fund Portfolio

A scientifically curated portfolio of mutual funds designed to provide growth as per your goal requirements, while managing risk.

Indicative returns of 10-12% annually

Indicative returns of 10-12% annually

Investment horizon of 1-3 Years

Investment horizon of 1-3 Years

3 Years of lock-in

3 Years of lock-in

Short term goals such as buying a car or funding a vacation

Short term goals such as buying a car or funding a vacation

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The word savings has evolved over a period of time with improvements in the economy. Currently, savings is defined as the money one has saved, especially through a bank or an official scheme. There are so many savings plans available in the market offered by Post Offices, Government, banks, and corporates. With so many savings plans available in the market it gets confusing and difficult to choose one plan. We at Scripbox, have decided to categorize savings plans in three broad categories. Namely, Government Savings, Bank Savings and Market Linked Savings plans.

Types of Savings Plan

Government Savings

Government savings schemes are offered by the Government of India. The purpose of government savings schemes is to encourage small savings among the citizens of India. They have different plans for different purposes. For example, they have savings plans exclusively for a girl child or retired citizens. The returns from government savings schemes are guaranteed. The risk involved in these plans is almost 0%. The lock-in for these plans varies from 5 years to 20 years. Hence these schemes are highly liquid. Tax treatment for government savings plans vary from one plan to the other. However, most of them qualify for tax deduction under Section 80C of the Income Tax Act. Few of the government savings schemes are Public Provident Fund (PPF), National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS), and Sukanya Samriddhi Yojana (SSY).

Bank Savings

Bank savings schemes are offered by banks and some financial institutions regulated by the Reserve Bank of India. These schemes are for every citizen for India. They encourage savings by providing high liquidity. The returns from bank savings schemes are fixed and guaranteed. Similar to government savings schemes, the risk in them is almost negligible. Additionally, they are more liquid when compared to government savings schemes. The bank savings schemes have varying lock-in periods from 7 days to 10 years. The returns from bank savings schemes are taxable and are also subject to TDS. Bank savings schemes are Fixed Deposit (FD) and Recurring Deposit (RD).

Market-Linked Savings

Market-Linked products are those that are offered by asset management companies. The purpose of market-linked products is to provide an opportunity to invest in small amounts in market-linked securities like equities. The returns from these are not guaranteed and are linked to the equity or debt market. They are riskier than government and bank savings plans. However, they are highly liquid. Some specific financial products such as ELSS Funds come with a lock in period of three years. The capital gains from these are taxed. 

Best Savings Plans in India to invest in 2022

Savings PlanPurpose
Best Bank Savings Plan
Fixed DepositSavings
Recurring DepositRegular Savings
Best Government Backed Savings Plan
Public Provident FundEncourage savings for retirement
Best Equity and Debt Market Linked Products
Liquid Mutual FundsShort term savings
Equity Linked Savings Scheme (ELSS)Wealth creation through equity
Equity Mutual FundsLong term wealth creation

Interest rate/growth rates for best savings plans in India

The interest rates for the best money saving plans are given below in the table. 

Interest rate/growth rates for best savings plans
Savings PlanInterest RateGuaranteed Income
Fixed Deposit5.5%-7.5%Yes
Recurring Deposit4.5%-6.5%Yes
Public Provident Fund7.10%Yes
Liquid Mutual Funds6.5%-7.5%Low Risk Market Linked Returns
Equity Linked Savings Scheme (ELSS)12%-15%Market Linked Returns
Equity Mutual Funds12%-15%Market Linked Returns

Know all about the Best savings plans in India

Now let us look at the best money savings plans in detail

Fixed Deposits (FD)

Purpose: Saving

Interest: 5.5% – 7.5%, guaranteed returns

Minimum Investment: Varies from bank to bank

Maximum Investment: No limit

For decades fixed deposits have been Indians best savings options. Fixed deposits are bank based investment products. FDs are closely monitored by RBI and assures safety. These are low risk investments. With FDs, investors invest a fixed sum of money for a specified period of time and earn a fixed interest rate. The money invested can be redeemed along with interest earned upon maturity. This savings plan comes with a five year lock in period.

Premature withdrawals are not available for FDs. The interest rate offered by FD’s is higher when compared to savings bank accounts. It allows only a one-time lump sum deposit. Interest earned is subject to TDS upon maturity. Investments up to INR 1,50,000 are eligible for tax redemption under Section 80C of the Income Tax Act.

Investors can avail loan against their FD investments at lower interest rates. The interest rate for an FD investment is fixed at the time of opening the account. The interest rates are independent of any fluctuations in the market. Additionally, investors have an option to reinvest the interest to receive a lump sum amount upon maturity. FDs offer higher interest rates to senior citizens on their deposits. This helps them manage their post retirement expenses.

Recurring Deposit (RD)

Purpose: Regular Savings

Interest: 4.5% – 6.5%, guaranteed returns

Minimum Investment: INR 500

Maximum Investment: INR 1 Lakh per month

A recurring deposit is a term deposit that is offered by banks. RD is a savings plan that helps investors deposit money regularly and earn high returns upon maturity. RDs encourage saving habits among people. Investors can choose their term period, number of deposits and the amount that they wish to deposit.

The minimum amount for a bank RD is INR 500, and for a post office RD is INR 10. The interest offered varies from bank to bank. Also, the interest rates are sensitive to market fluctuations. RD savings plan tenure varies between 7 days to 10 years.

Premature withdrawals are allowed for RDs but with a penalty. Also, RD investments can be used as a loan collateral. Any individual, HUF, corporate, company, NRI, government organization, minor above age of 10, and minor below age of 10 under a legal guardian can open a RD account.

RDs offer higher interest rates to senior citizens. This savings plan doesn’t allow investors to change their monthly investment amount. Unlike equities, RD is a guaranteed income plan. A 10% TDS is applicable if the interest earned is more than INR 10,000 from RD investments.

Public Provident Fund (PPF)

Purpose: Retirement

Interest: 7.10% (April – June 2020), guaranteed returns

Minimum Investment: INR 500

Maximum Investment: INR 1,50,000

PPF was launched in 1968 by the National Savings Institute. It is also one of the post office savings schemes. This tax saving investment plan is backed by the government and is one of the most popular savings plans.

PPF contributions are eligible for tax deduction. Investments up to INR 1,50,000 can be claimed for tax deduction under Section 80C of the Income Tax Act. Most importantly, returns from PPF are completely tax exempted as well. The minimum investment into a PPF account is INR 500 and the maximum investment is INR 1,50,000.

Investors cannot open multiple accounts. The interest is compounded annually. PPF investments can be payable in the form of lump sum or up to 12 deposits per financial year. PPF is easily transferable from one post office or bank to the other. The lock-in period is 15 years for PPF. The savings plan can be extended by another 5 years.

Any Indian citizen can avail benefits of this savings plan. However, NRIs and HUFs are not eligible to open a PPF account. Additionally, investors can avail a loan against PPF investments. The loan can be availed between the third and fifth year.

Liquid Mutual Funds

Purpose: Short term savings

Interest/Growth Rate: 6.5% – 7.5% (Historical returns)

Minimum Investment: INR 500

Maximum Investment: No Limit

Liquid Funds are debt mutual funds that invest in very short-term market instruments. The short term market instruments such as government securities, treasury bills, and call money. Liquid funds invest in low-risk securities. They invest in securities which have maturity up to 91 days. Also, their average maturity is much lower than other funds. The average historical return of liquid funds is around 6.5% – 7.5%.

One can invest their surplus money for a short time. Liquid funds are the best alternative to savings accounts and FDs. Since liquid funds are a subset of debt funds, the taxation is similar to debt funds.  Therefore, short term capital gains (investments held for less than three years) are added to the investor’s taxable income and are taxed as per the applicable tax slab. While, the long term capital gains (investments held for greater than three years) are subject to 20% tax with indexation benefits.

Additionally, liquid funds have the lowest risk associated when compared to other debt funds. This is because liquid funds invest in fixed income securities with short maturity. Also, liquid funds do not have any entry or exit loads (after a 7 day period during which a staggered exit load is applicable).

Equity Linked Savings Scheme (ELSS)

Purpose: Wealth creation through equity

Returns: Market linked (12-15% historical returns)

Minimum Investment: INR 500

Maximum Investment: No cap on maximum investment, but can save tax only on INR 1.5 lakhs investment per annum

ELSS are equity mutual funds that qualify for tax savings under Section 80C of the Income Tax Act. Indian citizens (residents and non-resident Indians) can invest in ELSS funds. They are diversified equity mutual funds that invest across market capitalization and sectors. They have a lock-in period of 3 years.

One can continue to invest in this scheme even after a 3 year lock-in and they need not withdraw their investments after. They charge an expense ratio on the NAV of the fund. No premature withdrawals are available. The investment up to INR 1.5 lakhs is eligible for tax exemption. However, the long term capital gains (LTCG) over INR 1 lakh are taxed. The minimum investment is INR 500 through SIP and there is no limit on maximum investment. Historically, these funds have given 12-15% annualized returns. However, past fund performance is only an indication as the returns from the funds are market linked.

They are the only kind of mutual fund that are eligible for tax savings. The key benefits of ELSS funds is that they can be used as tax saving instruments and for long term wealth creation.

One can invest in ELSS funds through online or offline mode. Through offline mode, one can directly approach the fund house to invest. Or they can go with an intermediary. Online investing can be again done through the fund houses’ website or any other online platform like Scripbox. There are many ELSS funds in the market. However, Scripbox uses its proprietary algorithm to rank the top funds. Scripbox recommended funds are Mirae Asset Tax Saver Fund and Motilal Oswal Long Term Equity Fund.

Equity Mutual Funds

Purpose: Long term wealth creation

Interest/Growth Rate: 12% – 15% (Historical returns)

Minimum Investment: Minimum Lump sum INR 500 – INR 5000; Minimum SIP INR 500

Maximum Investment: No Limit

Equity mutual funds invest in stocks/equities. As per SEBI categorisation, each mutual fund has to invest based on its investment objective. There are multiple categories under Equity mutual funds. They are Large Cap FundMid Cap FundSmall Cap Fund, Multi Cap Fund, Sector or Thematic, Value, Balanced, ELSS, and Index Funds.

Equity funds are best suited for long term goal based investing.

One can link their investments to a goal and invest towards it. Investments in equity mutual funds can be done either through lump sum route or SIP route.

These funds offer significant returns only when invested for long durations. Equity mutual funds are highly volatile and hence one can benefit only in the long term. Historical returns from investing in equity mutual funds vary based on the category. However, on an average the historical returns (fund performance) has been around 12% – 15%.

Equity mutual funds are taxed based on their holding period. Short term capital gains (investments held for less than one year) are taxed at 15%. While the long term capital gains (investments held for greater than one year) above INR 1 lakh are taxed at 10%. Equity mutual funds come with exit loads. Equity mutual funds are subject to market risks, therefore, investors who understand and are willing to undertake the risk associated should only invest.

Comparison between best savings plans in India

Savings PlanLock-in PeriodReturnsTaxEligibilityMinimum InvestmentMaximum Investment
Fixed Deposit5 Years5.5% – 7.5%Returns are taxableIndian Individuals, HUFs, NRIs, PIO, OCIVaries from bank to bankNo Limit
Recurring Deposit6 month – 10 years4.5% – 6.5%Returns are taxableIndividual, HUF, corporate, company, NRI, government organization₹ 500₹ 1,00,000 per month
Public Provident Fund15 years7.10%No Tax on returnsOnly Indian Citizens₹ 500₹ 1,50,000
Liquid Mutual FundsNo Lock-in6.5%-7.5% (Historical Returns)Returns are taxableIndividual, HUF, corporate, company, NRI, government organization₹ 500No Limit
Equity Linked Savings Scheme (ELSS)3 Years12%-15% (Historical Returns)Returns are taxableIndian Citizens and NRIs₹ 500No Limit
Equity Mutual FundsNo Lock-in12%-15% (Historical Returns)Returns are taxableIndividual, HUF, corporate, company, NRI, government organization₹ 500No Limit

Other Savings Plans to Invest for 2022

Apart from the best plans, there are other savings plans available in the market.

Other Savings PlanPurpose
Employee Provident FundEncourage savings for retirement
National Savings CertificateSmall Savings
Senior Citizen Savings SchemeRetirement Income
Post Office Monthly Income SchemeMonthly Income
Kisan Vikas PatraSmall Savings
Sukanya Samriddhi YojanaGirl child education and marriage
Atal Pension YojanaPension for unorganized sector workers
Pradhan Mantri Dhan YojanaFinancial Inclusion – a bank account for every adult
Unit Linked Insurance PlanInsurance plus investment

Interest rate/growth rates for other savings schemes

The interest rates for the other money saving plans are given below in the table. 

Savings PlanInterest RateGuaranteed Income
Employee Provident Fund8.50%Yes
National Savings Certificate6.80%Yes
Senior Citizen Savings Scheme7.40%Yes
Post Office Monthly Income Scheme6.60%Yes
Kisan Vikas Patra6.90%Yes
Sukanya Samriddhi Yojana7.60%Yes
Atal Pension YojanaReturns depend on contributionsYes
Pradhan Mantri Jan Dhan Yojana4%Yes
Unit Linked Insurance Plan12-15%Market Linked Returns

Know all about the other savings schemes

Now let us look at the other money savings plans in detail.

Employee Provident Fund (EPF)

Purpose: Encourage savings for retirement

Interest: 8.5%

Minimum Investment: 12% of basic salary by employer and employee

Maximum Investment: 12% of salary by employer, maximum limit of INR 15,000 salary. Employees can contribute more if he/she wants.

EPF is a popular savings scheme introduced by the Employee Provident Fund Organization (EPFO) under the supervision of the Government of India. It is a scheme that encourages savings among the salaried class employees.

Under the scheme, the employee has to pay a certain contribution which is matched by the employer. On retirement, the employee gets the lump sum amount along with interest. If the employee is below the pay of INR 15,000 a month then he/she is eligible for the scheme. Employees above this pay can also contribute to the scheme voluntarily.

12% of the basic salary goes towards EPF contribution. The employer also makes a similar contribution for the employee. The interest on EPF is calculated monthly and the current interest rate is 8.5%.

To withdraw money from an EPF account, the person has to attain the age of 55. A partial withdrawal is allowed when the person is above 54 years and 90% of the amount can be withdrawn. If the person decides to quit the job before the age of 55, EPF can still be withdrawn. However, only 75% can be withdrawn if the person remains unemployed for one month and the balance 25% can be withdrawn if the person remains unemployed for more than 60 days.

If the employee has provided 5 years of continuous service then he/she doesn’t have to pay tax on his/her premature withdrawal. EPF falls under EEE category under Section 80C of the Income Tax Act. The investment, interest, and maturity amount all are exempt from tax.

National Savings Certificate (NSC)

Purpose: Promotes small savings

Interest: 6.80% (April – June 2020) guaranteed returns

Minimum Investment: INR 100

Maximum Investment: No Limit

National Savings Certificate is a Government of India initiative to help investors start small savings. It is also one of the post office savings schemes. This tax saving investment plan encourages small to mid-income investors to invest while saving tax. NSC investment can be done easily by visiting the nearest post office.

The interest rates are revised every quarter. NSC investments are eligible for tax savings under the Section 80C of the Income Tax Act. For investments up to INR 1,50,000 investors can claim tax benefits. The interest earned from NSC investment is compounded annually. Also, by default, the interest earned is reinvested into the scheme.

Therefore, NSC offers fixed income to its investors. Upon maturity the investor gets the entire corpus. There is no TDS cut for NSC payouts. However, the returns are added to the income of the investor and are taxed at the applicable Income Tax rate.

NSC doesn’t allow premature withdrawals. But there are exceptions, in case of death of the investor, or on a court order or on forfeiture by a pledgee who is a Gazetted Government Officer for it. Investors can use the NSC as a collateral. Banks and NBFCs accept NSC as a loan collateral. Finally, NSCs are suited for anyone looking for a safe investment avenue to save taxes while earning fixed income.

Senior Citizen Savings Scheme (SCSS)

Purpose: Retirement Income

Interest: 7.40% (April – June 2020) guaranteed returns

Minimum Investment: INR 1,000

Maximum Investment: INR 15 Lakhs

A Senior Citizen Savings Scheme is a safe investment option available for retirement purposes. It is also one of the post office savings schemes. SCSS offers safety and regular income for its investors. Additionally, it is also an excellent tax saving plan. The plan is best suited for retired individuals looking at less risky products and focusing on minimising tax. Investors can invest through a certified bank or a post office across India.

Indian individuals who are at least sixty years old can invest in SCSS. However, individuals who have taken voluntary retirement or Senior Citizen Savings and are in the age range of 55 years to 60 years are also eligible for investing in SCSS.

HUFs and NRIs are not eligible to invest in this savings plan. An individual can open multiple SCSS accounts, however, the total across all the accounts shouldn’t exceed a maximum of INR 15 Lakhs. Also, a point to note is that the amount invested in the scheme cannot be higher than the money received at retirement.

Cash deposits are accepted if the amount is below INR 1 lakh, and for all investments above INR 1 lakh cheque deposit is mandatory.

The average tenure of the savings plan is five years, but it can be extended for three more years. Premature withdrawals attract certain penalties. In case of the demise of the investor, no penalty is charged for premature closure.

The interest rates offered under the scheme are revised every quarter. Also, investors are eligible for quarterly disbursals against their deposited amount. Investments up to INR 1.5 Lakhs are eligible for tax exemption under Section 80C of the Income Tax Act. However, the interest received is subject to taxation as per the applicable income tax slab rate. Finally, SCSS savings are very safe, reliable and are one of the best saving plans available for retired individuals.

Post Office Monthly Income Scheme (MIS)

Purpose: Monthly Income

Interest: 6.60% (April – June 2020), guaranteed returns

Minimum Investment: INR 100

Maximum Investment: INR 4,50,000

Post Office Monthly Income Scheme is a savings plan that gives its investors monthly returns in the form of interest payments. This is a low risk monthly income scheme. Therefore, the plan offers steady income for investors. POMIS is a government sponsored scheme. Upon maturity of the savings plan, one can choose to withdraw or reinvest the amount into the scheme. Returns from POMIS are high when compared to other savings plans and the returns are subject to taxation. Also, no TDS is deducted.

This savings plan is available only for Indian citizens.

Any number of accounts can be opened by an individual. However, the total amount held in all the accounts cannot exceed INR 4,50,000 in a single account and INR 9 Lakhs in a joint account.

The minimum amount for this post office savings plan is INR 100. In case of investor relocation, the account can be transferred to the new post office without any extra costs. The savings plan has a five year lock-in period.  POMIS allows investors to withdraw the deposited amount one year from the first deposit.

However, withdrawal between one and three years attracts 2% penalty and between three and five years attracts 1% penalty. Point to note, if the interest earned every month isn’t claimed by the account holder, then the interest shall not earn any additional interest. The interest earned isn’t subject to TDS, however it is added to the taxable income of the investor and is taxed as per their tax slab.

Kisan Vikas Patra (KVP)

Purpose: Small Savings

Interest: 6.90% (April – June 2020), guaranteed returns

Minimum Investment: INR 1,000

Maximum Investment: No Limit

Kisan Vikas Patra is one of the post office savings schemes. Under this savings plan, the amount an investor invests doubles in a period of 124 months i.e. ten years and four months. Initially, this plan was only for farmers, however, now it is made available for everyone. The minimum investment is INR 1,000.

The government has made it mandatory to provide PAN Card as a proof for all investments above INR 50,000. And, for investments beyond INR 10,00,000 income proofs have to be submitted. Indian citizens above the age of 18 years can open Kisan Vikas Patra at any local post office.

Most importantly, this savings plan isn’t subject to market fluctuations and hence is a guaranteed income plan. The current interest rate is 6.90% and it is revised every quarter. KVP savings plan has a lock-in period of thirty months.

Investors can redeem the investment at intervals of six months once the lock-in period is over. Additionally, a KVP investment certificate can be used as a loan collateral. KVP savings plan is not eligible for Section 80C deductions of the Income Tax Act. Therefore, the investments and returns are taxable. The KVP savings plan is a low risk savings option that provides guaranteed returns and is a safe investment option.

Sukanya Samriddhi Yojana (SSY)

Purpose: Girl child education and marriage

Interest: 7.6% (April – June 2020), guaranteed returns

Minimum Investment: INR 250

Maximum Investment: INR 1.5 lakhs

SSY is a Government of India initiative to support the ‘Beti Bachao Beti Padhao Campaign’. It is also one of the post office savings schemes. The scheme was launched in 2015 and the interest rate is decided by the Government every quarter.

For the current quarter, April 2020-June 2020, the interest rate is 7.6% compounded annually. It is a fixed income savings plan and the returns are guaranteed. A SSY account can be opened in a post office or in designated private and public sector banks. The account can be opened only in the name of the girl child by the parent or legal guardian.

The girl has to be a resident of India and the account can be opened for a girl child below the age of 10. At the age of 18, the girl child can take control of her account.

The maximum and minimum investment is INR 1.5 lakhs and INR 250 respectively which should be done till the girl child reaches the age of 15. The government allows only one account per girl child and two accounts per family and three in case of triplets. The account is transferable from one bank to another. The investment and the proceeds from the account can be withdrawn when the girl child is getting married or at the age of 21, whichever is earlier. At the age of 18, 50% of the money can be withdrawn for higher education of the girl child.

Premature withdrawal is allowed if the girl child unfortunately dies or needs money for treating a life threatening disease. After the scheme matures (when the girl child reaches 21), no interest will be earned even if the money is not withdrawn. Sukanya Samriddhi Yojana falls under EEE (Exempt Exempt Exempt) category. The investment amount, the interest earned, and the maturity amount all are exempt from tax.

explore our article on child investment plans

Atal Pension Yojana (APY)

Purpose: Pension for unorganized sector workers

Interest: Varies with contribution

Minimum Investment: NA, monthly contribution is calculated based on pension selected

Maximum Investment: NA, monthly contribution is calculated based on pension selected

APY is a Government of India initiative for the unorganized sector to include them under the social security scheme. Launched in 2015, this scheme is a voluntary pension scheme for the unorganized sector workers. Under the APY scheme, the subscribers would receive fixed amounts of pensions of INR 1,000, INR 2,000, INR 3,000, INR 4,000 and INR 5,000 per month at the age of 60 years based on the contributions they made.

Individuals can join this scheme at the age of 18 and the maximum age to join is 40 years. Individuals can contribute only up to the age of 40. The contribution levels will be low if the person joins early and increases if he/she joins late. All bank account holders are eligible to contribute to this scheme. However, the main focus is on the unorganized sector workers.

The subscription amount is decided based on the fixed pension amount the person chooses. At any point, the subscriber can reduce or increase the pension amount. But this switching option is only provided once a year only in the month of April.

In case of default, the subscribers are supposed to pay a penalty that varies from INR 1 to INR 10 based on the contribution amount.

If any subscriber discontinues to pay, after 6 months, the account will be frozen, after 12 months the account will be deactivated and after 24 months the account will be closed. The contribution towards the APY scheme is eligible for tax benefits up to INR 1.5lakhs under section 80CCD (1) and an additional INR 50,000 under Section 80CCD(1B).

Pradhan Mantri Jan Dhan Yojana (PMJDY)

Purpose: Financial Inclusion – a bank account for every adult

Interest: 4%

Minimum Investment: NIL

Maximum Investment: No cap on maximum investment

PMJDY is a savings scheme launched for National Mission for Financial Inclusion (NMFI) by the Government of India in 2014. Its motive is to provide banking services to all unbanked adults who are citizens of India.

The account can be opened with zero balance and there is no minimum amount to be maintained in the account. Interest of 4% per annum is credited into the account. RuPay debit cards are given for account holders. Accident insurance cover of INR 2 lakhs is available for these debit card holders. An overdraft of INR 10,000 is available to account holders. The interest charged on this is 3.5% above 1 year MCLR.

The PMJDY accounts can be opened in any bank or business kiosk. These accounts are Basic Savings Bank Deposit Accounts (BSBDA) and they provide few basic facilities like withdrawals, ATM and debit card, cash deposits free of cost. A person cannot have any other savings account if he/she has a BSBDA account. PMJDY accounts can be transferred from one branch to another upon request of the account holder.

The documents required to open a PMJDY account are an Aadhar card, Voter ID or Driving Licence or Passport and NREGA card. A person can still open an account with any of these documents with just an ID card issued by Central/state departments and a letter issued by a gazetted officer.

Unit Linked Investment Plans (ULIP)

Purpose: Insurance plus investment

Returns: Market linked (12-15% historical returns)

Minimum Investment: Depends on the investment term chosen

Maximum Investment: Investments are done through premium, hence maximum investment depends on the plan and term chosen.

ULIP Plan is a traditional plan. It is an insurance plus investment product. It provides a life insurance policy to the holder along with investment options. The premium payment by the policyholder is done either monthly or annually. The sum assured from ULIPs insurance is around 10 times the premium paid.

A small part of the premium paid goes towards insurance and the rest is invested in stocks, bonds or mutual funds. Indian citizens (residents and non-resident Indians) can invest in ULIPs. The returns from ULIPs are market linked and hence aren’t guaranteed. They have historically given 12-15% return. ULIPs usually are offered based on goals like retirement, child’s education and marriage or for pure investment purposes.

ULIPs suit investors across all life stages, with varying risk profiles and investment horizons.

Investors can choose the funds to invest through a ULIP. The ULIP plan provides investments in funds after deducting insurance premium, asset allocation charges and other charges like charge for managing funds, policy administration etc.

Though ULIP is a traditional plan, it is quite flexible. It allows investors to switch between funds, add in single premium payment to the existing investments and also allow partial withdrawal, but subject to charges and commission. ULIPs come in single premium and regular premium of annual, semi-annual and monthly payments.

ULIPs have a lock in period of 5 years, but however they come with insurance (sum assured of 10 times the premium paid). And investors might not benefit from ULIPs if they do not hold it for an entire term which is usually 15-20 years.  Investments and returns from ULIPs are exempted from tax.

ULIPs have a lot of hidden charges and hence investors are often discouraged to invest in them. Instead, a good alternative to this is a term insurance plus investment in mutual funds. A term insurance plan provides life insurance cover for a specific term.

Comparison between other savings schemes

Other Savings PlansLock-in PeriodReturnsTaxEligibilityMinimum InvestmentMaximum Investment
Employee Provident FundAttain the age of 558.50%No Tax on returnsOnly Indian Citizens12% of basic salary by employer and employee12% of salary by employer, maximum limit of INR 15,000 salary
National Savings Certificate5 Years6.80%Returns are taxableIndian individual citizens₹ 100No Limit
Senior Citizen Savings Scheme5 Years7.40%Returns are taxableIndian individual citizens of at least 60 years old₹ 1,000₹ 15,00,000
Post Office Monthly Income Scheme5 Years6.60%Returns are taxableOnly Indian Citizens₹ 100₹ 4,50,000
Kisan Vikas Patra10 Years and Four Months6.90%Returns are taxableOnly Indian Citizens₹ 1,000No Limit
Sukanya Samriddhi YojanaGirl attains 21 years or gets married, whichever is earlier7.60%No Tax on returnsGirl has to be resident of India₹ 250₹ 1,50,000
Atal Pension Yojana20 YearsVaries with contributionInvestment is tax freeAll bank account holdersMonthly contribution is calculated based on pension selectedMonthly contribution is calculated based on pension selected
Pradhan Mantri Dhan YojanaNA4%NAOnly Indian CitizensNILNo Limit
Unit Linked Insurance Plan5 Years12%-15% (Historical Returns)No Tax on returnsIndian Citizens and NRIsDepends on the investment term chosenDepends on investment plan and term chosen

Which banks provide the highest FD interest rates?

Fixed Deposit comes with different investment tenure. The minimum period of an FD is 7 days and maximum is 10 years. The FD rates are different for different investment horizons. And they differ from bank to bank. Following are the highest FD rates.

One Year FD Rates (per annum)

 One Year FD Rates (per annum)
BankRegular CitizenSenior Citizen
IDFC First Bank7.25%7.75%
RBL Bank7.20%7.70%
IndusInd Bank7.00%7.50%
YES Bank7.00%7.50%
DCB Bank6.75%7.25%
Bandhan Bank6.25%7.00%
Federal Bank6.00%6.50%
Axis Bank5.80%6.45%
Bank of Baroda5.70%6.20%
ICICI Bank5.55%6.05%

Three Year FD Rates (per annum)

 Three Year FD Rates (per annum)
BankRegular CitizenSenior Citizen
RBL Bank7.50%8.00%
DCB Bank7.35%7.75%
IDFC First Bank7.25%7.75%
YES Bank7.00%7.50%
IndusInd Bank6.75%7.25%
Federal Bank6.25%6.75%
Bandhan Bank6.10%6.85%
Axis Bank5.75%6.25%
ICICI Bank5.75%6.25%
Bank of Baroda5.70%6.20%

Five Year FD Rates (per annum)

 Five Year FD Rates (per annum)
BankRegular CitizenSenior Citizen
DCB Bank7.35%7.75%
IDFC First Bank7.25%7.75%
RBL Bank7.15%7.65%
YES Bank7.00%7.50%
IndusInd Bank6.75%7.25%
Federal Bank6.25%6.75%
Bandhan Bank6.00%6.75%
Axis Bank5.75%6.25%
ICICI Bank5.75%6.25%
Bank of Baroda5.70%6.20%

The FD rates are subject to change without any intimation by the bank. The above FD rates are the highest in the market currently.

Are all savings schemes tax-free?

Not all savings schemes have tax benefits. For some savings plans, only investment is tax free. While for others, the interest and maturity amount are also tax free.

The taxation structure of each of the plans is given below.
Savings SchemeTax on InvestmentTax on Returns Earned
Fixed DepositInvestment is tax free only on Tax Saving FDsReturns are taxable
Recurring DepositInvestment is tax freeReturns are taxable
Public Provident FundInvestment is tax freeNo Tax on returns
Liquid Mutual FundsInvestment is not tax freeReturns are taxable
Equity Linked Savings Scheme (ELSS)Investment is tax freeReturns are taxable
Equity Mutual FundsInvestment is not tax freeReturns are taxable
National Savings CertificateInvestment is tax freeReturns are taxable
Senior Citizen Savings SchemeInvestment is tax freeReturns are taxable
Post Office Monthly Income SchemeInvestment is not tax freeReturns are taxable
Kisan Vikas PatraInvestment is not tax freeReturns are taxable
Sukanya Samriddhi YojanaInvestment is tax freeNo Tax on returns
Atal Pension YojanaInvestment is tax freeReturns are taxable
Employee Provident FundInvestment is tax freeNo Tax on returns
Pradhan Mantri Jan Dhan YojanaNANA
Unit Linked Insurance PlanInvestment is tax freeNo Tax on returns

One can use the Scripbox income tax calculator to determine their tax outflow and taxable income after investing in the above saving and investment plans. The income tax calculator also suggests suitable ELSS funds in case there is scope to save more tax.

Frequently Asked Questions

Why is a savings plan important?

Saving money is very important. It will help us handle any unnecessary expenses and uncertain situations with ease. Experts advise having an emergency fund that covers at least 6 months to 1 year expenses. But saving can be combined with investment with the schemes launched by the Government of India. 
Emergencies : Emergency situations can knock anyone’s door at any time. One has to be prepared for medical emergencies, national emergencies, etc. To be prepared, having an emergency fund is important. One can use any savings bank account to deposit money for emergency purposes. Bank savings account gives interest on deposits.
Uncertainties : Uncertainties like job loss are more common now. There is no security for anyone’s job. A sudden loss of income might affect an entire family. 
Financial Discipline : Saving and investing regularly can inculcate discipline in one’s life. Bank auto debits have made this easier to achieve.
Future planning : One doesn’t just have a saving plan for emergencies or uncertainties. They need to plan for a better future. Investing in long term plans like PPF, NSC and FDs can aid the person during retirement or any other financial goals.
Hassle free life : Planning now for the future is important. With savings and investments in place for all financial life goals like retirement, children’s education and marriage, one can lead a hassle free life.

How to choose the best savings plan for me?

Choosing which savings plan to invest in isn’t not really a difficult task. One has to consider the following things before they choose a savings plan. This makes their selection easy.
Goals/Purpose : Having a goal or a purpose to invest/save makes investing easier. One has to decide for what purpose they are investing. Is it for a girl child, or for retirement, or for building a home. The purpose of investing usually solves the question of which plan to choose. For example, for a girl child, SSY is a possible option but does come with its own limits from a practical perspective.
Investment horizon : In how many years will they want to achieve the goal? It is an important question to ask oneself. There are saving plans with different investment horizons attached to it. Choosing the one which is closer to realizing one’s goal is suggested.
Lock in : Most of the savings plans have lock-ins. Keep this in mind when choosing the plan as you ideally don’t want a lock in for a short term plan.
Interest rate or Growth rate : The growth rate is an important parameter for choosing a plan. Choose a plan that matches your needs and goals and ensure the plan is designed to deliver the required growth rate.
Costs : Savings plans come with few expenses attached to it. These might affect the returns. Choose the plans with least expenses.
Auto debit : Having a savings plan is effective when one religiously invests in them. There’s no point in starting a savings plan when one doesn’t contribute to it regularly. Banks have auto debit options. Whichever plan one chooses, having auto debit to it is important. Choose a plan which has auto debit options.

What are Saving Schemes?

Savings schemes are investment schemes launched by the Government of India or other public sector financial institutions for Indian citizens. The main aim of these schemes was to cultivate the habit of savings among the citizens. Since the government backs these saving schemes, they are safe and offer significant returns. Also, most of these schemes offer tax benefits to their investors. Savings schemes cater to a wide range of investors. In other words, these schemes have a special focus on different milestones. For example, there are schemes for retirement purpose, for children’s higher education, girl child, etc. Hence, they are ideal long term investments that come with a lock-in period and have the capacity to generate significant returns.

How do I create a Savings Plan?

While creating a savings plan, one should make sure that they plan for all emergencies and needs. Therefore, one should first start by creating an emergency fund to address all their medical and unforeseen emergencies. Ideally, an emergency fund should have at least three to six months of an individual’s salary.
Next, one should have a well-covered insurance plan. The insurance plan should cover an individual’s medical expenses and as well as their life. Insurance is a basic requirement for a secure future. In case of unforeseen events, the family of the insurer should be secure financially. Hence, adding an insurance policy to one’s savings plan is important.
After setting aside for emergencies and insurance, one should focus on their investments. There are multiple investment options available for investors. One can choose to invest in equity, debt, bank deposits, gold, or real estate, etc. It is ideal to invest at least 20%-30% of one’s salary. Among the different investment options, one can choose the schemes that best suit their investment objective, horizon and profile. Also, if one doesn’t have the knowledge or time to create an investment plan, they can always approach a financial advisor. Scripbox is one such platform that helps investors with the best plans and helps them save towards their lifegoals.