3 Best Small Savings Plans for Long-Term Debt Investors in 2022

Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP) is a small savings scheme which can be opened at any post office with a minimum deposit of Rs. 1000/- and in multiples of Rs. 100/- with no maximum deposit limit. This account can be opened either individually, or jointly with a maximum of 3 adults, or in the name of a minor. The most tempting feature of the scheme is that it is guaranteed to double your money in ten years and four months.

Upon the death of the account holder, the account may be transferred to legal representatives/heirs. Only after 2 years and 6 months from the date of filing can a KVP account be prematurely closed due to the death of a single account holder or all holders of a joint account. For long-term bond investors looking for higher yields than bank FDs, KVP is a reasonable solution for risk-averse investors who want to double their deposited money over the long term.

Although KVP does not allow Section 80C deductions, TDS is exempt on withdrawals made beyond the term to maturity.

Public Provident Account (PPF)

Public Provident Account (PPF)

Investing in a Public Provident Fund (PPF) account is highly recommended when it comes to tax savings, secure returns and security. PPF is an investment instrument that falls under the Exempt-Exempt-Exempt (EEE) category, which means that you will be exempt from tax on the investment amount up to Rs 1.5 lakh per annum, while the accrued interest and the maturity amount at the end of maturity is also exempt from tax.

This account can be opened by a single adult or in the name of a minor by a resident Indian. The minimum deposit amount is Rs 500, with a maximum deposit amount of Rs 1.5 lakh. Currently, the Plan pays an annual interest rate of 7.1% (compounded annually) and the interest is tax exempt under the Income Tax Act.

Only after 5 years from the end of the year in which the account was created can a PPF account be closed prematurely, subject to certain conditions. While the assured returns and tax advantages are compelling reasons to invest in the PPF, the 15-year lock-in term is the main downside.

As a result, the PPF can benefit risk-averse individuals planning for long-term goals, as it is a risk-free debt instrument.

Seniors Savings Plan (SCSS)

Seniors Savings Plan (SCSS)

Senior citizens are suffering the most from the current low interest rate scenario of bank DFs, which is why it is generally recommended to invest in the Senior Citizen Savings Scheme (SCSS). This scheme can be established by anyone over the age of 60 and the account can be opened individually or jointly with a spouse.

The account only requires one deposit in multiples of INR.1000/- with a maximum limit of INR 15 lakh. Currently, the scheme offers a higher interest rate of 7.4% per annum, which is significantly higher than the interest rates offered on deposits by major banks such as SBI, HDFC, ICICI and Axis.

The interest rate under SCSS will be payable on a quarterly basis. If the total interest on all SCSS accounts in a financial year exceeds Rs.50,000/-, the interest is taxable and TDS is deducted from the total interest paid. However, by submitting Form 15G/15H, the TDS can be avoided.

The account can be closed at any time and it can be closed after 5 years or at maturity from the date of opening. The scheme provides a stable source of income while providing the maximum level of security and tax savings for seniors who wish to earn higher returns than DFs over the long-term 5-year maturity period.

Carol M. Barragan