MANAGING PERSONAL FINANCE

GROUP ASSIGNMENT ON POST OFFICE SAVINGS SCHEME

Submitted by Prama Teja (09MBI013) Jaya prakash Naidu (09MBI023) Kiran Reddy (09MBI026) Ragavendra.B (09MBI050) N.Vishnu Prasad (09MBI065)

Post Office Savings Schemes

POST OFFICE SAVINGS: In turbulent times like these, safety of the investment is of utmost priority among people. For ages we have been hearing / seeing / using the post office forsending letters, document Etc. what the current generation does not know about the post office is the fact that, it has been an investment heaven for our fathers and their fathers ask somebody who is in their sixties, one of the top 3 choices for investment would be the post office.

Since the post office is owned by the government of India whatever money we invest in it is totally 100% safe and secure. What more they give us competitive rate of interest on our investment as well.

Post Office Savings Schemes:

Savings Bank: Savings Bank accounts are ruled by Post Office Savings Bank Rule 1878. There are three types of accounts. They are

Individual Account:

Any individual can open an account. Types of accounts: (i) (ii) (iii) Single Account Joint Account Pension Account

Cheque facility available Minimum Rs.50/- for non cheque account and Rs.500/- for Cheque Account. There will be no maximum limit for retaining balance in single as well as Joint savings account.

Rate of interest 4.0% per annum From the Financial year 2011-12, Interest income of Rs.3500/- in the case of single account and Rs.7000/- in case of Joint account will be exempted from Income Tax. (Section 10(15) (i) of Income Tax Act, 1961 amended vide Notification No. 32/2010 {F.No. 173/13/2011-IT A.I}/S.O.1296(E) dated 03.06.2011)

It is the duty of the depositor(s) to show the interest income earned from Post Office Savings Account(s) beyond the limit prescribed above in the Income Tax return and pay due Income Tax.

MONTHLY INCOME SCHEME (MIS)

Safe & sure way to get a regular monthly income. Specially suited for retired employees/ Senior Citizens or any one with high sum for investment .

Minimum limit: In multiples of Rs.1500/- Maximum limit: Rs. 4.5 Lakhs in Single Account and Rs. 9 Lakhs in Joint Account.

Maturity Period - Six Years for accounts opened prior to 01.12.2011 and Five years for accounts opened on or after 01.12.2011

Rate of interest 8.5% per annum with effect from 01.04.2012 No bonus for accounts opened on or after 01.12.2011 Premature encashment after one year up to 3 years at 3.5% discount. Post maturity Interest at the rate applicable from time to time (at present 3.5%) Auto credit facility to SB Account. Deposit in Monthly Income Scheme and invest interest in Recurring Deposit to get 10.5% (approx) interest.

Above scheme operates automatically, if you open a saving bank account and give a request for automatic transfer of Monthly Income Scheme interest to Recurring Deposit through Saving Bank account.

RECURRING DEPOSIT (RD)

Any individual (a single adult or two adults jointly) can open an account. Minimum: Rs.10/- and multiples of Rs.5/- thereafter. Maximum: No limit. Maturity period 5 years. Rate of interest 8.4% per annum with effect from 01.04.2012 6 and 12 months Advance Deposits earn rebate. Four defaults are allowed. Defaults can be paid within two months. One withdrawal upto 50% of the balance allowed after one year. Premature closure allowed after three years. Pay Roll Savings Scheme is also available for employees of various Establishments. Interest earned is deductible under Section 80L of I.T. Act.

Can be continued for another 5 years - on year to year basis also with or without monthly deposit.

Amount repayable on a RD account of Rs.10/- denomination opened on or after 01.04.2012 shall be Rs.746.51.

TIME DEPOSIT (TD)

Any individual (a single adult or two adults jointly) can open an account. Minimum: Rs.200/- and multiples of Rs.200/- Maximum: No limit. 1 Year, 2 Year, 3 Year and 5 Year TD can be opened. 2, 3 & 5 Year TD Accounts can be closed after one year at a discount. Revised rate of interest for accounts opened on or after 01.04.2012 is as follows

1 Year Account 8.2%

2 Year Account 8.3%

3 Year Account 8.4%

5 Year Account 8.5%

In case of premature closure of 1 Yr, 2 yr, 3 Yr and 5 Yr account on or after 01.12.2011, if the deposit is withdrawn after 6 months but before the expire of one year from the date of deposit, simple interest at the rate applicable to from time to time to Post office savings account shall be payable. In case of premature closure of 2 yr, 3 yr or 5 yr account on or after 01.12.2011, if the deposit is withdrawn after the expiry of one year from the date of deposit, interest on such deposits shall be calculated at the rate, which shall be one per cent less than the rate specified for a period of a deposit of 1 yr, 2 year or 3 years as mentioned in the concerned table given under Rule 7 of PO TD rules.

SENIOR CITIZENS SAVINGS SCHEME (SCSS)

A new avenue of investment and return for Senior Citizen. The account may be opened by an individual, Who has attained age of 60 years or above on the date of opening of the account.

Who has attained the age 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of opening of the account within three months from the date of retirement.

No age limit for the retired personnel of Defence services provided they fulfill other specified conditions.

The account may be opened in individual capacity or jointly with spouse. Non-resident Indians (NRIs) and Hindu Undivided Family (HUF) are not eligible to open an account.

The individual may open one or more account in the multiple of Rs.1000/-, subject to a maximum limit of Rs.15 lakh. Further, more than one account cannot be opened in the same post office during a calendar month.

No withdrawal shall be permitted before the expiry of a period of five years from the date of opening of the account. The depositor may extend the account for a further period of 3 years.

Premature closure of account is permitted After one year but before 2 years on deduction of 1 % of the deposit. After one year but before 2 years on deduction of 1 % of the deposit. After 2 years but before date of maturity on deduction of 1% of the deposit. In case of death of the depositor before maturity, the account shall be closed and deposit refunded without any deduction along with interest.

Interest @ 9.3% per annum, payable from the date of deposit of 31st March/30th Sept/31st December in the first instance & thereafter, interest shall be payable on 31st March, 30th June, 30th Sept and 31st December. Interest can be automatically credited to savings account provided both the accounts stand in the same post office.

Interest rounded off to the nearest multiple of rupee one. Post Maturity Interest at the rate applicable to the deposits under Post Office Savings Accounts from time to time is admissible for the period beyond maturity.

Nomination facility is available in the Scheme. No Income-tax/Wealth Tax rebate and/or exemption is admissible under the scheme. Monthly Income Scheme (MIS) and Senior Citizen Saving Scheme (SCSS) are the best for Senior Citizens who desire monthly/quarterly interest. Invest in MIS / SCSS and transfer interest into RD account through SB account through written request and earn a combined interest of 10.5 % (approx.). This is the safest investment option for the Senior Citizens.

15 YEARS PUBLIC PROVIDENT FUND

Ideal investment option for both salaried as well as self employed classes. Non-Resident Indians (NRIs) not eligible. Minimum of Rs.500/- and maximum of Rs. 1,00,000/- in a financial year. At least one deposit in a financial year. Qualified for IT Rebate under section 88 of IT Act. Rate of interest 8.8% per annum with effect from 01.04.2012. Loan facility available from 3rd financial year upto 5th financial year. Withdrawal permitted from 6th financial year. Free from court attachment. Interest completely tax free. Term extendible in multiples of 5 years. An individual cannot invest on behalf of HUF (Hindu Undivided Family) or Association of persons.

INTEREST RATES ON POST OFFICE SAVING SCHEMES INCREASED: In a bonanza to millions of small savers, the government today increased interest rates on deposit schemes offered by post offices, like savings account, Monthly Income Scheme and Public Provident Fund. While post office savings accounts (POSA) will fetch 4 per cent interest, up from 3.5 per cent, the Monthly Income Scheme (MIS) and the Public Provident Fund (PPF) will earn an interest of 8.2 per cent and 8.6 per cent respectively, a government release said. The maximum increase is in the one-year fixed deposits-- from 6.25 per cent to 7.7 per cent. The interest rate on other time maturities has been hiked as well. The new rates will be applicable from the date of notification which will be announced soon. The decision to hike interest rates, which is in line with the recommendations of Shyamala Gopinath Committee, will make small savings schemes more attractive and returns would be in sync with market rates. The government, however, decided to discontinue the Kisan Vikas Patras (KVPs) and lowered the maturity period for MIS and NSCs to five years from existing six years. It also introduced the National Savings Scheme (NSC) with 10-year maturity.

The annual investment ceiling in PPF savings has been increased to Rs one lakh from the present limit of Rs 70,000, but it would be costlier to obtain loans from the savings under as lending rate has been doubled to two per cent. The government has scraped five per cent bonus on MIS and has also done away with commission for agents on PPF and Senior Citizens Savings Schemes.

People who prefer post office saving scheme?

India Post offers a whole range of attractive banking services, but mostly middle class ignores Post Office as a probable investment destination, only exception is perhaps retired government servants, who routinely head for the local post office to collect their monthly MIS dues. But one can definitely look at investment options offered by Post Offices. The best part about is that the return is guaranteed and if you are a smart investor then you can maximize your return. And of course for retired people, there is nothing like Post Office investment, particularly Senior Citizens Savings Scheme and Monthly Income Scheme safe and perhaps highest guaranteed return. Then there are other facilities as well tax benefit in certain schemes and complete absence of small prints. The biggest downside is perhaps the quality of service but even there some improvement is visible! Post Office Saving Schemes are the preferred option for people who like to Invest for Savings and Tax planning with security of Government of India. Post Office offers many schemes like Savings accounts, Term Deposits, Monthly Interest Payout Schemes, Recurring Deposits, PPF, etc. They haven't been talked about like mutual funds or equities, nor are they as attractive, but post office schemes have been quiet faithful, yielding handsome returns to investors. In the current interest rate scenario, these schemes offer good investment opportunity for both small and medium-sized investors, although they are not suitable for large investors due to limit on investments. So, if you have idle money, think of investing in post office schemes instead of looking at other investment opportunities.

The post office schemes can be divided into four categories: Post Office Recurring Deposit, Time Deposits, Post Office Monthly Income Schemes, and Senior Citizens Savings Schemes. The schemes like Post Office Recurring Deposits force you to save on a monthly basis. This is similar to investing in Systematic Investment Plans of a debt mutual fund without its associated risks. Post Office Recurring Deposits have an investment period of five years, offering a fixed rate of interest unlike banks which constantly change their recurring deposit interest rates. If you have a lump sum, then opt for the one-time investment in Time Deposits which can be made for the periods of 1 year, 2, 3 and 5 years. Others, such as Post Office Monthly Income scheme, the most popular post office scheme, provide an interest rate which is paid monthly. This scheme has a maturity period of six years. Tax benefits can be availed under section 80L. The scheme is primarily meant for retired people, but it is also meant for people who want to invest a lump sum amount initially and earn interest on a monthly basis for their livelihood. These schemes give a return of 8% plus a bonus of 10% on maturity. However, this 10% bonus is not available in case of premature withdrawals. Besides monthly schemes, people can invest in Post Office Savings deposit. This provides an interest rate of 3.5% per annum which is compounded annually. Interest from post office savings deposit is tax free. This increases the yield on your investment. India's post offices have become the largest bank for senior citizens. A new scheme known as Senior Citizens Savings Scheme was launched last year. Retiring employees can take advantage of it and deposits by such persons is restricted to their retirement benefits or Rs 15 lakh, whichever is lower. This scheme is for a period of five years and no withdrawal of the amount is permitted before a period of five years from the date of the opening of the account.

It is unbelievable but true that post offices rake in the maximum revenue through collection of post office saving schemes. The perception that post office saving schemes are the safest instruments are responsible for the highest share of such deposits in the country. The post office schemes are unlikely to witness any major change in the interest rate despite an adverse movement in the interest rates. Some of the Features of these Schemes are Safe, secure and risk-free investment options. No Tax Deduction at Source (TDS). Nomination facility is available. Nomination can be changed at any time. The instruments are transferable to any Post Office Attractive rates of interest.

Who are the beneficiaries of post office scheme?

India's postal system is a huge asset which is currently under-utilised, under-skilled and under-developed. The 150,000 post offices in a country of 640,000 villages (that's where the post office really matters) represent a reach unmatched by any other organisation.

If it is developed and used well, it can give a leg-up to those parts of the country and their denizens who have benefited the least from the high growth of the post-reform period.

Till not so long ago, post offices were relics of the past where the urban middle class would not venture unless absolutely necessary. The burgeoning private courier companies appeared to be driving the last nail in the coffin of the slowly declining giant.

But then, just as hope always triumphs in India, the post office began to change. It gave itself a new logo, prominent urban post offices began giving themselves a new look and you could spot PCs across counters.

The post office management is now getting bolder by the day and big brothers in the government have given it permission to spend Rs 2,000 crore (Rs 20 billion) in the next two years to bring in an IT revolution.

All post offices will be linked, a core banking solution will be installed and pre-paid cards will be introduced with which you will be able to send money from anywhere to any post office through your cellular phone.

All that the person at the other end will have to do to get instant credit is have a savings bank account with his post office.