Saving Schemes With No Tax Benefits But Good Returns: RDs Vs MIS Vs KVPs Vs SIPs

When planning your investments you should consider investing in saving schemes that may not be offering you income tax benefits but provide decent interest rates. Recurring deposits, post office monthly investment scheme, kisan vikas patra (KVP) and systematic investment plans in equity mutual funds are some of such investment options. Financial planners suggest that cutting down on the tax outgo should be just one of the goals of investment - the target should be to increase your savings and add on to your wealth. This can be achieved by investing in the above-mentioned saving schemes.

Given below is a comparison among recurring deposits, post office monthly investment schemes, kisan vikas patra (KVP), and systematic investment plans:

Recurring deposits (RDs): Recurring deposits require regular monthly contributions from customers. RDs help you build your wealth via your savings. One can choose between six months to 10 years. Interest earned is added to the income and taxed at applicable tax slabs.

Post office monthly investment scheme account: This scheme provides a similar option like RD, where one can invest small amounts every month for a slightly longer tenor of five years. There is a maximum cap of Rs. 9 lakh under joint ownership and Rs 4.5 lakh under single ownership. The interest rate is set each quarter and is payable monthly. The product, however, does not provide any tax benefits but is apt for customers looking at capital protection and moderate returns, said Puneet Kapoor, Sr. EVP, Kotak Mahindra Bank.

Kisan Vikas Patra (KVP): KVP certificates require a minimum investment of Rs 1,000 and in multiples of Rs 1,000. There is no maximum limit on the amount that can be invested in these certificates. KVPs fetch you an interest rate of 7.3 per cent, which is compounded annually, according to indiapost.gov.in.  The amount invested doubles in 118months (9 years and 10months).

Systematic Investment Plans: "While the word equity rings a bell, investors need to understand that a disciplined SIP of a small amount in equity mutual funds significantly reduces the risk and can contribute to tax efficient superior wealth creation. For tenors greater than 10 years (children's higher education / retirement planning), returns in SIPs of good equity mutual funds have historically proven to be unparalleled," said Mr Kapoor. (Also Read: Mutual Fund Investment: Don't Confuse ELSS With SIP, Here's Why)

The key reason to invest in mutual funds is liquidity, says Lakshmi Iyer, CIO (Debt)- Head- Products, Kotak Mutual Fund.

"Diversification is the other benefit which cannot be undermined while making investment decisions. Also, MFs offer the entire suite of asset class offerings ranging from fixed income to equities to hybrids, gold, international funds etc. Hence, it tends to act as a 'one stop shop' for making financial investments," she added.

So every time you want to make investments, your prime focus should be to maximise your returns.  However, one will be made to pay income tax on the income accruing on saving instruments. the quantum of income tax will depend on the tax slab one falls under. For instance, if your annual taxable income is above Rs 5 lakh, but below Rs 10 lakh, your tax liability on the income-bearing saving instruments will stand at 20 per cent (as per the tax slab). Whereas someone whose taxable income ranges between Rs 2.5 lakh and Rs 5 lakh, the tax liability will stand at 5 per cent by virtue of falling under the low tax bracket. So, your net savings on these savings schemes might rise (lower tax liability) or fall (higher tax liability) depending on the tax bracket you belong to.