Need money urgently? You can borrow on these two small savings plans
- KVP is currently offering interest rates of 6.9%
- NSC is a five-year product that currently offers an interest rate of 6.8%
- According to the State Bank of India website, an interest rate of around 11.9% is charged for a loan on these products.
New Delhi: The government recently decided to leave interest rates on small savings schemes unchanged for the July to September quarter of this year. In accordance with the notification issued by the Ministry of Finance, ‘The interest rate on various small savings plans for the second quarter of the financial year 2021-22 beginning on July 1, 2021 and ending on September 30, 2021 will remain unchanged compared to the current rates applicable for the first quarter for 2021-22’.
Amid the coronavirus pandemic, this has been a huge relief for the middle class and those dependent on small savings plans. Small savings schemes are among the most popular debt investment options for Indians. Not only do they offer higher interest rates for long-term investments, but some of them are also useful in case you need money for a financial emergency.
You can borrow from these two small savings plans:
Kisan Vikas Patra: KVP is currently offering interest rates of 6.9%. The amount invested in this scheme doubles in 10 years and four months, which is also the maturity period at present. An investor can invest as little as Rs 1,000. There is no maximum investment limit in Kisan Vikas Patra (KVP).
Unlike many other long-term savings plans, KVP allows investors to make early withdrawals. However, if you withdraw less than a year after purchasing the certificate, not only will you lose interest, but you will also have to pay a penalty.
If you withdraw between one and two and a half years after purchasing the certificate, there will be no penalty, but your interest will be reduced. Withdrawal at any time after two and a half years is permitted and does not entail any penalty or interest reduction.
National Savings Bond: This is a five-year product that offers an interest rate of 6.8%. The minimum amount you can invest in NSC is Rs 1,000 while there is no limit on the maximum investment amount. These instruments are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. However, only investments up to Rs 1.5 lakh will be eligible for tax deduction under Article 80C. These instruments can be purchased at any post office.
Offered by the Post Office, the NSE also offers tax exemptions under Section 80C. The amount invested in NSC up to Rs 1.50,000 lakh per annum is deducted from the taxable income. Interest on NSE accrues annually, but is only payable at maturity. Currently, the interest rate granted on NSC is 6.8%.
Loan against small savings:
According to the Bank of Baroda website, one can get up to 85% loan of face value from these two small savings schemes if the remaining term is less than three years. If the residual maturity is greater than three years, the borrower can obtain up to 80% loan of the nominal value. An individual may also pledge these securities for an overdraft facility.
State Bank of India: According to the State Bank of India website, an interest rate of around 11.9% is charged for a loan on these products.
It should be remembered that an investor can pledge these products only to specified institutions, including banks, non-bank financial companies, public and private companies, government companies, local authorities, as well as the President of the country and the governor of a state.