Small Savings Schemes (Tax Saving Schemes): Investments & Risks

Given the recet turmoil in the stock markets and the case like Satyam frauds coming out, the investors trust is shaken. No body is willing to take unknown risks in the open markets by investing is stocks and mutual funds. Instead, investors are now getting more and more concerned about the security of their investments. They are also looking for safe investments that too over a shorter period of time, as the longer your investment horizon is, the longer the risk is. Ask a Satyam investor who has been holding the Satyam shares since a long time (buying at 700) and now seeing all the turmoil with current market price at around 50 Rs.
So, the need of hour is security as well as small tenure of investments. Not only that, the investors are also concerned about making large value of investments in various investment schemes. They want to invest only small amounts that too with caution. Small Savings Schemes do exactly that. They provide you with options to invest your money in small amounts, yet providing the benefits of safety and even tax saving. In this article, we will discuss about Small Savings Schemes and how they help you in making a good and secure investment.

Let's start with the basics: What are Small Savings Schemes?
Small savings schemes are offered to investors who are willing to invest small amounts of money for varied period of times. These schemes are usually offered by government backed organizations, and are designed to provide safe and attractive investment options with tax benefits to investors who want to stay away from the risks of the stock market.

What are the investment options available under the Small Savings Scheme?

There are multiple options available for investors for Small Savings Schemes. They include tax savings and investment instruments and can be listed as below:

Public Provident Fund
Employees' Provident Fund
National Savings Certificate
Kisan Vikas Patra
National Savings Scheme, 1992
Relief Bonds
Post office monthly income scheme
Post office time deposits

What are the benefits of investing in Small Savings Scheme?

There are many benefits.
First and foremost, you get safety for your invested money. They provide assured returns even through volatile markets.

Government Backing: Since all these schemes are controlled by government-run post-offices and public sector banks, the safety of your investment, timely payments of interest and repayment of principal on maturity is safe.

Small Investor Friendly: Some of these investment schemes have a minimum investment of Rs 5, making it easy for anyone to invest in the schemes.

Tax benefits: For people with high taxable incomes, the tax benefits offered by these schemes are very attractive.
Liquidity: Access to your investments is very easy.
Most of the schemes provide for premature withdrawals and a few of the schemes also offer loans based on the investment made.
These schemes can be shifted from one post office to another. Hence they are suitable for persons having transferable jobs.

What are the risks in investing in Small Savings Scheme?
Dont believe that just because the Small Savings Schemes are backed by the goverment, there are no risks. Risks are everywhere. Here is an article explaining the Post Office Savings Scheme: Investments and Risks.
Then, some schemes like PPF and NSC offer long term investments. Hence your money is locked in for long term. Beware of that fact.
Third, you may be charged for pre-mature withdrawal of your invested money.
Fourth, all schemes do not offer transfer from one office/city to other.
Fifth, please be aware that it is not easy to get the money from government offices, even after maturity of your investments. Every now and then we hear stories about how individual are harassed for getting their PF money or pension money and cases of bri-bery are reported