Post Office Recurring Deposit
This is a 5 year scheme where one invests on a monthly basis. However, there does exist an option for the fund to be closed after 3 years, which comes with a penalty of 1%.
The advantage with the postal recurring deposit over the bank recurring deposit is that the minimum monthly investment is only Rs.10/- with no upper limit. In case the payment is made once is 6 months or on a yearly basis, there are discounts for that too.
The limitation is that the interest rate is fixed at 7.5% only and auto-debit to bank account is not available.
There are no tax benefits from the scheme. However Post Offices have not been deducting TDS.
Post Office Monthly Income Scheme
For the retired people, the Post Office Monthly Income Scheme is a good savings instrument. The interest is 8% divided on a monthly payout basis. The payout if not required can be channeled to a recurring deposit. The effective returns increases by almost 10% by doing this.
The interest can be credited to a savings account of any bank too. The account can be closed after 1 year with a 5% penalty and after 3 years without any penalty. The limitation however is that the maximum investment for any individual is only Rs 6 lakh.
The ranking of the above 5 savings schemes have been done based on their returns, the convenience factor to close and change to another savings scheme (important when the interest rate is rising) and the safety for investments. Of all the options the debt mutual funds appear to score the highest due to their flexibility and returns. This is closely followed by the mutual fund MIPs.
Also read: Are FMPs really risky?
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