Reasons to invest in small saving schemes
When it comes to savings, people might be good savers. However, when it comes to investing those savings, they are quite apprehensive. They either have investments in bank FDs or invest them in land or buy a property. Many also consider small savings schemes, such as public provident funds, senior citizen savings schemes, time deposits, and national savings certificates. However, as they carry low risk-low returns profile, they fail to create as much wealth as equities can. Nonetheless, it does not mean that you should ignore it completely. Every product has some traits that might suit a few investors. Here are a few reasons to invest in small savings schemes.
Fixed interest rate
When it comes to equity investments, they are bound to be volatile and, at times, you would also see your principal investment amount deteriorating. However, in the case of these small saving schemes, the rate is fixed. Although these rates are reviewed by the Government of India quarterly. As they provide a fixed interest rate, investors get stability in returns. Even if the interest rate changes, the change is not exorbitant.
Low-income investors
At times we have some people, specifically, those, who have either got their first job or those, who have income so low that they do not have enough to invest and risk their investments. For such people, the small saving scheme is the right investment to go for. The only drawback to this is that they are sort of illiquid. This means that if you are in a need of money, in case of certain emergency, then there are certain limits on withdrawal. However, you can overcome this by planning for an emergency fund. this will help you to plan your other investments towards growth without any hindrance.
Safety first
People, who are conservative and wish to give priority to safety first, would be benefited greatly by these products as these can help them to achieve capital protection. One can use these schemes to protect their financial goals that are needed and cannot be compromised. However, as they are low risk-low returns product, you cannot expect them to create the wealth as equities can create. So, ideally, it is important to have investments in both. The first part would concentrate on safety and would be invested in small saving schemes and the rest to be invested in the index or large-cap funds to create wealth over the long run.