Which post office plan is best and for what ?

We always look forward to invest money in any investment plan where the returns are at higher side and same time we expect investments should be secured. If we have shortlisted these two criteria than the post office schemes are the best investment schemes which are giving better returns on investments and same time these are reasonably secured. We have to choose the right investment plan in all these plans according to our requirements. While investing money generally we invest considering few criteria.

1. Long or short term investment.
2. Recurring or Fixed investment
3. More return on investment.
4. Lock-in- period of investment

(1) Long or short term investment

Before investing money in any plan we should be very much clear about the duration of the investment as in post office schemes of longer duration plans are paying more returns. We need to define the plan of investment as this has to be invested in three kind of module

• The money can be withdrawn any time in case of emergency – In most of the post office schemes, the option for withdraw money any time is very limited. Only saving account is having this facility which is giving very low return around 4% annually.

• The money can be invested shorter duration around 5 years lock in period – Here few schemes like National Saving certificate (NSC) and Time deposit investment options are available.  In NSC the rate of interest are maximum is 7.9% compounded quarterly but lock in is 5 years. In time deposit the interest rate is 6.9 to 7.7% but option for lock in period is 1,2,3 & 5 years where for 1-3 years the rate of interest is 6.9% and for 5 years the rate of interest is 7.7%.

• The money will be invested for longer duration between 8-15 years lock in period – In this category the post office is offering two schemes one is Kisan Vikas Patra (KVP) and other is Public Provident fund (PPF). In KVP the lock in period is 9 years 5 months and this will double the money where interest rate is 7.6% per annum compounded annually.  PPF is offering lock in period of minimum 15 years and further it can be extended for 5 year block period with prior intimation with in a years after expiry of tenure.

If above mentioned parameters are defined than the investment plan can be selected according to the requirements.

(2) Recurring or Fixed investment

We generally have two source of income one is where every month we are getting income and other is sometime we get lump-sum money at any time during year. For these both income options, post office schemes are offering recurring deposit scheme and regular deposit scheme where invest can be made either monthly or on need basis.

For recurring deposit, the 5 year national saving recurring deposit account can be opened in any post office. The rate of interest is 7.2% compounded quarterly. Investment of Rs 1000/- every month for 5 years will fetches Rs 72,505/- after 5 years. It can be further continue for period of 5 years.

For Fixed deposited schemes NSC is the best investment option which has also lock-in period of 5 years but returns are more as interest rate is 7.9%. If you invest Rs 1,00,000/- in NSC then after maturity period of 5 years you will get Rs 1,46,250/-.

(c) More return of investment

This is one of the important aspect while investing money is any investment plan. If we are looking for shorter or longer lock-in –period plans, the post office investment plans are offering better interest rate as compare with bank deposits. The bank fixed deposit interest rate are between 6% to 6.7 % and the post office schemes are offering better interest rates between 7% to 8%. The bank fixed deposit plans are offering interest rate where interested will be calculated quarterly compounded. In most of the post office schemes the interest rate will be calculated annually compounded.  Even still returns are higher in post office schemes as compare to fixed deposit schemes.

(d) Lock-in- period – If we are investing money for financial freedom corpus than the longer lock in periods will pay more returns than the shorter period. In case of bank fixed deposit as tenure of investment increase, the interest rate will be reduced. Maximum interest rate are only available in one year fixed deposit. Even after one year the interest rate may reduce so lock in period for longer time will fix you returns. Most of the post office schemes are offering lock In period starting from 1 years to 15 years and even it can be further extended for 30+ years.

The other good part is that investing in longer lock in period we are not allow to take out money during fixed tenure which actually help us to control our spending habits.

Summarized details of post office schemes

5-Year Post Office Recurring Deposit Account (RD)

• Duration                           – 5 year
• Minimum contribution    – Rs 10/-
• Maximum contribution    – No limit
• Interest rate                     – 7.2 % per annum (quarterly compounded)
• Interest after maturity     – Taxable
• 80 C benefit                     – No    

Post Office Time Deposit Account (TD)

• Duration                           – 1,2,3,5 years
• Minimum contribution    – Rs 200/-
• Maximum contribution    – No limit ( should be multiple of Rs 200/- )
• Interest rate                     – For 1, 2, 3 years – 6.90% per annum (quarterly compounded) For 5 Years – 7.70% per annum (quarterly compounded)
• Interest after maturity     – Taxable
• 80C benefit                      – Only on 5 year time deposit

Post Office Monthly Income Scheme Account (MIS)

• Duration                           – 1,2,3,5 years
• Minimum contribution    – Rs 1500/-
• Maximum contribution    – Rs 4.50 Lakhs ( single account holder ) multiple of Rs 1500/-. Rs 9.00 Lakhs ( joint account holders ) multiple of Rs 1500/-
• Interest rate                     – 7.6% per annum payable monthly 
• Interest after maturity     – Taxable
• 80C benefit                      – No

National Saving Certificate ( NSC ) VIII issue – 5 years

• Duration                           – 5 years
• Minimum contribution    – Rs 100/-
• Maximum contribution   – No Limit ( Multiple of Rs 100/- )
• Interest rate                     – 7.9% per annum compounded annually 
• Interest after maturity     – Taxable
• 80C benefit                      – Yes

Public Provident Fund Account ( PPF ) 15, 20, 25 year –

• Duration                           – 15 years
• Minimum contribution    – Rs 500/-
• Maximum contribution    – Rs 1,50,000/- per year in 1-12 lump-sum installments
• Interest rate                     – 7.9% per annum compounded annually 
• Interest after maturity     – Non – Taxable
• 80C benefit                      – Yes

Kisan Vikas Patra (KVP ) – 9.33 years

• Duration                           – 9 years & 4 months
• Minimum contribution    – Rs 1000/-
• Maximum contribution    – No limit
• Interest rate                     – 7.6% per annum compounded annually 
• Interest after maturity     – Taxable
• 80C benefit                      – No

Comparison of schemes

So it is evident that the invested under secured invest option, post office schemes are the best option and in longer period investment it is fetches good return on investments. Before investing plan your investment according to requirement. Post office scheme are the best schemes for creating corpus for financial freedom.

To know more about post office schemes are in details you can read article “Post Office Schemes are the best tool for multiplying your investment”