FD vs Small Savings Schemes: For investors who want to avoid risk, several reliable financial options are available in the Indian market. These include Public Provident Fund (PPF), National Savings Certificate (NSC), Kisan Vikas Patra (KVP), and Senior Citizens Savings Scheme (SCSS). All of these offer investors an annual interest rate of approximately 6.9 percent to 7.5 percent. The government has not changed the interest rates for these small savings schemes for the March quarter, allowing investors to expect safe and stable returns as before.

FDs are the first choice for investors

Along with small savings schemes, Fixed Deposits (FDs) are also quite popular among retail investors. Banks offer different interest rates on FDs for different tenures, making it an easy and understandable option for short-term investors. Many investors prefer FDs because the investment period is clear and the returns are fixed.

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FD or Small Savings Scheme?

Investors often get confused about whether they should invest in FDs or small savings schemes. To choose the right option, it is important to understand some important factors. First, the difference in interest rates. Currently, most banks are offering an annual interest rate of approximately 6.25 percent to 6.40 percent on FDs. However, the rate is slightly higher in small savings schemes, ranging from 6.7 percent to 7.5 percent.

Second, the lock-in period. Despite the higher interest rates in small savings schemes, they also have a lock-in period. For example, NSC has a five-year lock-in period, while PPF has a 15-year lock-in period. Therefore, it is essential to understand how long you will not need the money before investing.

Interest Rates of Small Savings Schemes

The current interest rates for small savings schemes are as follows. Interest rates available on National Savings RD accounts are 6.70 percent, Post Office MIS 7.40 percent, Senior Citizens Savings Scheme 8.20 percent, PPF 7.10 percent, Sukanya Samriddhi Account 8.20 percent, National Savings Time Deposit 6.9 to 7.5 percent, KVP 7.50 percent, NSC 7.70 percent, and Mahila Samman Savings Certificate 7.50 percent.

Investment Options from a Tax Perspective

The interest earned from FDs is taxable according to your income tax slab. This means that the higher your income tax rate, the more tax you will have to pay. However, the interest earned from small savings schemes is tax-free. Although investments in NSC and PPF are no longer eligible for deductions under the old tax regime, the interest earned from them remains tax-exempt.

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Essential for Balanced Investment

Investment experts believe that investors should not rely on just one option. It is better to create a balanced portfolio by combining FDs and small savings schemes. Typically, PPF, NSC, and FDs cover the portion of a portfolio that falls under debt investments. They all serve the same purpose, but for different time horizons and needs.

Features of Small Savings Schemes

PPF is suitable for long-term wealth creation and offers a government guarantee and tax-free returns. NSC is a better option for medium-term investments, providing a government guarantee on both principal and interest. FDs are considered the best option for short-term investments, especially when the investment period is 2 to 3 years. Thus, PPF, NSC, and FDs can be included in your debt portfolio according to different financial goals.