Different investors follow different investment approaches depending on their objectives, financial requirements and risk tolerance. While there are investors who are willing as well as capable of taking market risks to get high returns, there are investors who are neither willing nor able to take market risks but they do want to invest in a budget. For these investors who want to secure their hard-earned money and also want their investments to accrue handsome returns, there are small investment plans.
What are Small Investment Plans?
Small Investment Plans is a term that is not categorised by investment institutes but can be referred to as instruments which allow the individuals to invest in schemes with small amounts of money and earn decent returns. These are just the best schemes for investors who are willing to invest for their financial aid but at the same time, they are not ready to expose their portfolio to high market risk with lump sum investments.
Here are top 5 small investment plans where an investor can choose to benefit from higher returns.
5 Best Smaller Investment Options
| Name of the Scheme | Current Interest Rate (%) | Minimum Investment Amount | Minimum Initial Deposit |
| Public Provident Fund | 7.1 | Rs.500 p.a. | Rs.100 |
| Post Office Monthly Income Scheme | 6.60 | Rs.1500 | Rs.1500 |
| Systematic Investment Plan | Market-linked | Rs.100 or Rs.500 (Varies from Fund to Fund) | Rs.100 or Rs.500 (Varies from Fund to Fund) |
| National Savings Certificate | 6.8 | Rs.100 | Rs.100 |
| Senior Citizens Saving Schemes | 7.4 | Rs.1000 | Rs.1000 |
1. Public Provident Fund (PPF)
Public Provident Fund tops the list of best small investment plans because of its three-fold benefits to the subscribers: security of investments, guaranteed returns and retirement savings. PPF is a government backed long-term saving scheme under which accounts can be opened with a minimum initial deposit of Rs.100. Interest rates for PPF accounts are revised every quarter by the Central Government. The current interest rate for Q1 of FY 2020-21 is 7.1% per annum.
Features of Public Provident Fund:
- Any individual who is a resident of India can open a PPF account.
- PPF Account requires a minimum annual contribution of Rs.500 and maximum contribution of Rs.1.5 lakh.
- A PPF account has a tenure of 15 years which can be extended by 5 years through an application by the account holder.
| Liquidity | Tax Benefit | Why Invest in PPF? |
| This scheme does not score high on this parameter. Withdrawals under this scheme are only permitted after completion of 5 years from the date of first deposit. In addition, the withdrawn amount also depends on the balance present in the PPF account till the previous year. | Investors can save a significant amount on income tax by investing in this plan. Investors can claim tax benefit under the Section 80C of Income Tax Act. The benefit will be given as per the latest guidelines of the government. This is an EEE investment option with regards to taxation. | PPF is a smart small investment plan for investors who do not have liquidity concerns but consider regular savings to be more important. Tax benefit is another reason for investing in this scheme. Investors who want a long-term investment solution with tax exemption benefits can start investing in PPF. They can either invest in one go or through a max. of 12 separate instalments during a financial year. |
2.Post Office Monthly Income Scheme (POMIS)
POMIS is a government backed small saving scheme formulated by the Indian Post to facilitate investment requirements of small investors. Basically, the scheme allows the individuals to set aside/save a specific amount every month, following which interest is added to this investment at the applicable rate and paid out to the depositor(s) on a monthly basis.
The interest rates for this scheme are fixed and revised by the Central Government and Finance Ministry every quarter depending on the returns yielded by Government bonds of the same tenure. Interest rate for Q1 of FY 2020-21 is 6.60%.
Features of Post-Office Monthly Income Scheme:
- A resident of India above the age of 10 years can open a POMIS account.
- This scheme has a maturity period of 5 years.
- The account functions with a minimum deposit of Rs.1500 and maximum deposit which can be made is Rs. 3 lakh.
- You can also open a joint account with this scheme.
- Nominee facility available and can be updated later after opening an account.
| Liquidity | Tax Benefit | Why Should Invest in PPF? |
| The scheme offers an exit option to investors after 12 months from the date of first investment. However, there is a drawback associated with this. Exit after 12 months would also entail 5% loss of the total amount invested. So, it is best to wait for at least 3 years to exit without any loss.
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This scheme does not offer any tax benefits with respect to principal investment or interest earned. | MIS is the best-suited investment plan for investors such as retirees who are seeking regular returns. The assured returns makes this scheme a lucrative proposition for risk averse investors. |
Also Check: Top 10 Monthly Income Plans to Invest
3. Systematic Investment Plans (SIP)
While Indian investors have been conservative in their mutual funds investments in the past, they are also starting to open up to schemes that can bring higher returns. Now, what if you want to invest in Mutual Funds but do not have enough funds? Here is an alternative to the traditional lump sum mode of investment, Systematic Investment Plan (SIP). Often consumers think SIP is a second name for mutual funds, however it is nothing but a mode of investing in such schemes.
SIP allows the individuals to deposit a certain amount in a mutual fund scheme at periodic intervals. It is often confused as a mutual fund but it must be noted that SIP is not a mutual fund scheme but a mode of investment into a Mutual Fund of your choice. You can start investing in funds with SIP with an amount as low as Rs.100 or Rs.500.
Features of a Systematic Investment Plan:
- These are monthly installments of as low as Rs.100 or Rs.500 differing from one scheme to another.
- SIPs are best for the individuals willing to invest in mutual funds but cannot afford to invest a large amount of money at once.
- SIP investors can go for SIP mandates with their banks for automated debit of the amount for instead of actively deciding to buy units.
- With this mode of investment, you can benefit from the power of compounding under which the interest capital on principal is reinvested. Consequently, the interest added will also earn interest when reinvested.
- SIP gives the investors rupee cost averaging benefits. Under Rupee cost averaging, more units of a fund are bought when the market price of the stocks/shares is low and lesser units are bought when the prices are high. Hence, it enables you to lower the average cost of your investment.
| Liquidity | Why should you invest in SIP? |
| SIP offers high liquidity as investors are allowed to exit and redeem units of funds anytime they want but, they will have to bear exit load if the redemption is done within 1 year of investment. For ELSS the lock-in period is 3 years for each SIP, before which redemption is not allowed. | SIP is a mode of investing in Mutual Funds which are basically market-linked investment schemes. Mutual Funds have the potential to give higher returns than most of the investment plans available in India. You should invest in Mutual Fund SIP to get exposure to higher returns without putting the capital at high levels of risk. You can also benefit from rupee cost averaging and power of compounding.
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4. National Savings Certificate (NSC)
NSC is a government backed tax-saving investment which can be purchased from any post office. It is majorly preferred by risk-averse investors or the ones seeking options to diversify their portfolio with a fixed-income instrument. The interest rates for National Savings Certificate are revised by the Finance Ministry. The applicable NSC interest rate for Q1 FY 2020-21 (April to June) is 6.8%. Minimum amount required for an investment in a National Savings Certificate is Rs. 100, while there is no maximum limit.
Features of NSC:
- A NSC can be issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000 and Rs. 10,000.
- There are three types of NSC accounts available – single holder, Joint Certificate-A and Joint Certificate-B.
- It is accepted as a collateral security against the secured loans by all the major banks and NBFCs.
- The subscribers can nominate any member of his family to inherit his investments in NSC in case of sudden demise of the investor.
| Liquidity | Tax Benefit | Why should you invest in a National Savings Certificate? |
| There is a lock-in period of 5 years with premature withdrawals permitted only in some special cases- death of the NSC account holder, on forfeiture by a pledgee who is a Gazetted Government Officer or order of court for premature withdrawal of NSC. | The principal amount invested allows tax exemption under Section 80C of Income Tax Act is up to Rs. 1.5 lakhs. However, the interest earned annually from NSC (for the first four years) is deemed to be reinvested hence exempt from tax and also eligible as a further deduction under Section 80C (subject to the overall annual limit of Rs 1.5 lakhs). But, the interest earned in the 5th year is not re-invested hence taxable as per the investor’s applicable slab rate. | Investors who give more preference to tax benefits as compared to liquidity should go for this scheme. One can start investing in this plan with as little as Rs. 100 and there is no upper limit for the investment. (Tax benefit limit is Rs. 1.5 lakhs annually). |
Also Know: What Mutual Funds Should I Buy for the Short Term?
5.Senior Citizens Savings Scheme (SCSS)
Senior Citizens Saving Scheme is also a government-backed savings instrument especially designed for Indian residents aged over 60 years. One can invest in this scheme with a minimum lump sum deposit of Rs.1,000. Deposits greater than Rs.1,000 have to be made in multiples of Rs.1,000. The maximum SCSS limit deposit is Rs.15 lakh. The scheme offers high guaranteed returns of 7.4% per annum.
Features of SCSS:
- Any resident above the age of 60 years can invest in this scheme. However, individuals who have attained the age of 55 or above can also invest in this fund provided that they have retired under applicable superannuation or VRS rules.
- The scheme has a maturity period of 5 years which can further be extended by 3 years.
- SCSS is available through Public/Private sector banks and India Post Offices.
- Being a government-backed savings instrument, the terms and conditions applicable to the SCSS are the same, regardless of the bank/ post office you invest through.
| Liquidity | Tax Benefit | Why Should Invest in PPF? |
| An investor can make withdrawals after completion of 1 year mandatory lock-in subject to some conditions and penalties. The scheme tenure is 5 years with the option to extend in a block of 3 years. | The amount invested in the scheme and returns are eligible for tax benefits under Section 80C of the Income Tax Act, 1961. However, TDS will be deducted if interest is more than Rs. 50,000 (Applicable from FY 2019-20 onwards, currently Rs. 10,000). | Investment in this scheme is a good opportunity for senior citizens to earn consistent returns. This is a long-term option which offers the benefits of any government-sponsored scheme. A depositor is allowed only a one-time deposit less than or equal to Rs. 15 lakh at a time. |