How Can Small Savings Schemes Help In Getting Regular Cash Flow Post-Retirement?

Small saving schemes not only help in inculcating the practice of savings but also help in getting regular cash flow post-retirement. So, it's important to choose the right one in sync with your financial goals

Amit Sethi
September 30, 2023
Significance Of Small Savings

Significance Of Small Savings

The soundness of an investment is judged by its rate of return, level of risk associated with it and ease of investment. Small saving schemes offer better interest rates than normal savings accounts and, in some cases, better than fixed deposits.


Brief Details Of Small Savings Schemes

Many of these schemes are run through post offices, which are present across the country. Hence, it is very convenient to invest in small savings schemes. There are many schemes under the umbrella of small savings schemes. The schemes offered are quite similar to bank deposits, such as savings account, time deposit, which is for a fixed tenure, and recurring deposit, which allows monthly deposits.

Moreover, many public and private banks also offer such schemes. People can go to the nearest bank branch or post office and invest in these schemes.

The list of investment options under small savings schemes includes the POMIS (Post Office Monthly Income Scheme), NSC (National Savings Certificate), PPF (Public Provident Fund), Senior Citizens Savings Scheme (SCSS), Sukanya Samriddhi Yojana (SSY), Kisan Vikas Patra (KVP). Investors are advised to look for the most recent information on the schemes, such as features related to interest rates, tax benefits, lock-in requirements, early redemption, etc. before they invest in them.

How Do They Provide Regular Cash Flow?

Many small savings schemes offer tax benefits, but not all of them. So, investors should check this before investing. Always check the tax benefits in conjunction with the interest rate. For example, PPF interest is tax-free, while POMIS is not tax-free. So, any savings in tax liability may effectively increase your cash flow to that extent.

POMIS is a great scheme for a regular periodic income. It generates interest income, which is credited every month to the investor’s account. Similarly, SCSS is another preferred investment that provides a periodic income. SCSS also offers one of the best interest rates. If you plan to invest a lump sum amount, then SCSS can be a good option. In SCSS, the interest is credited every quarter. These regular cash flows can help you meet your regular expenses.

The maximum investment limit in a POMIS account is Rs 9 lakh for individuals and Rs 15 lakh for joint accounts. On the other hand, the maximum investment limit in the SCSS is Rs 30 lakh. Currently, the interest rate on POMIS and SCSS is 7.2 per cent and 8.2 per cent, respectively. Investments in SCSS are eligible for 80C benefits, whereas no tax benefit is available on investments under POMIS.

Assuming you want to invest Rs 9 lakh to generate a regular income. In POMIS, you’ll get a monthly interest income of Rs 5,400; however, SCSS will give a quarterly interest of Rs 18,458 (around Rs 6,152 per month). So, the SCSS can give you a better return, tax benefits, and the opportunity to invest a bigger amount.

If you are not looking for a regular income, consider PPF for investment. PPF deposits mature in 15 years. You can partially withdraw money before maturity, subject to the applicable withdrawal rules. The money remaining in the account continues to earn interest after partial withdrawal.

Since the schemes are launched by the government, there is a minimum risk of default. During retirement, POMIS can be a good option for people looking for a monthly income, and the investment ticket size is up to Rs 9 lakh, but SCSS can be a good option for people who want to invest more than 9 lakh.

The author is an independent financial journalist

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