small saving market

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DEPARTMENT OF BUSSINESS ADMINISTRATION

UNIVERSITY OF LUCKNOW

PROJECT ON

SMALL SAVING MARKET THE INDIAN CONTEXT

(Management of Financial Institutions)

Submitted to:

Dr. Ajai PrakashSubmitted by:

Adison Growar Satye

MBA-FINANCE

Sem-III

Batch- 2011-1013



Acknowledgement

I take this opportunity to convey our sincere thanks and

gratitude to all those who have directly or indirectlyHelped and contributed towards the completion of this project.

First and foremost, we would like to thank Dr. Ajai Prakash fo

his constant guidance and support throughout this project

During the project, I realized that the degree of relevance of th

learning being imparted in the class is very high. The learning

enabled us to get a better understanding of the nitty-gritty of th

subject which I studied.I would also like to thank my batch mates for the discussion

that I had with them. All these have resulted in the enrichment o

my knowledge and their inputs have helped us to incorporat

relevant issues into my project.



jjh` k

TABLE OF CONTENT

Introduction…………………………………………1

Small Savings Schemes …………………………….2

Benefits of savings facilities for the poor..……….....3

Micro Finance in India………………………………4

Current Small Savings Schemes With Main Features.4

Administered Interest Rates………………………….7

Advantages and Disadvantages of Savings Accounts….9

Conclusions………………………………………….10

Bibliography………………………………………....10



INTRODUCTION

Small Savings Schemes are implemented through the Department of Posts, and 15 year Publi

Provident Fund Scheme is implemented through Head Post offices as well as Banks. Deposi

Scheme for Retiring Government Employees / Deposit scheme for Retiring Public Secto

Employees which also comes under Small Savings Schemes are implemented through Stat

Bank of India in all District Head Quarters.

In the present financial market, where a large number of private financial companies hav

disappeared, Small Savings offer the best and safest avenue of investment of househol

savings. Small Savings scrips not only yield high returns, but also are guaranteed b

Government and thus completely secure.

National Small Savings Fund

Small Saving schemes have been always an important source of household savings in India.(i) postal deposits [comprising savings account, recurring deposits, time deposits of varyin

maturities and monthly income scheme(MIS)].

(ii) savings certificates [(National Small Savings Certificate VIII (NSC) and Kisan Vikas Patr

(KVP)].

(iii) social security schemes [(public provident fund (PPF) and Senior Citizens„ Saving

Scheme(SCSS)].

A “National Small Savings Fund” (NSSF) in the Public Account of India has been establishe

with eff ect from 1.4.1999. A new sub sector has been introduced called “National Sma

Savings Fund” in the list of Major and Minor Heads of Government Accounts. deposits an

withdrawals by subscribers were made from the public account and interest payments t

subscribers and interest receipts from the States were recorded in the revenue account of th

Consolidated Fund of India.

Administrative Set-upThe small savings schemes are administered through the agency of post offices. The Publi

Provident Fund (PPF) scheme is operated through post offices as well as selected branches o

public sector banks whereas the Deposit Schemes for Retiring Government and Public Secto

Employees are operated through nationalised banks only. These schemes are operated through network of over 1,54,000 post offices and 8000 branches of public sector banks. As regard

GoI Savings Bond, while both RBI offices and agency banks act as the receiving offices for th

6.5 per cent Savings Bonds (non-taxable) 2003, only the agency banks act as receiving office

for the 8 percent Savings Bonds (taxable) 2003.

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SMALL SAVINGS SCHEMES

Scheme Rate Denomination andInvestment Limits

Liquidity TaxBenefits

NationalSavingsCertificate

8.16% p.a.

Compounded

Half Yearly

Minimum Rs.100, No

maximum limit,

denominations of Rs.100,

Rs.500, Rs.1000,

Rs.5,000 and Rs.10,000

Maturity after 6 years, No premature withdrawal

allowed

Section

80C

RecurringDepositAccount

Rs.10 per

month returns

Rs.728.90 on

maturity

Minimum Rs.10 per

month or any amount in

multiples of Rs.5, No

maximum limit

Maturity after 5 years, can be extended for further 5

years

One withdrawal up to 50% of the balance allowed

after 1 year, closure allowed after 3 years with

different rate of interest

Nil

MonthlyIncomeScheme

8% per annum

plus 10% bonus

on maturity

Minimum Rs.1000,

further deposit in

multiple of Rs.1000, up

to Rs.300,000 in case of

individual and

Rs.600,000 in case of

joint account

Maturity period is 6 Years, Premature withdrawal is

possible after one year upto 3 years with 5%

discount, withdrawal is possible after 3 years

without any discount and without bonus.

Nil

KisanVikasPatra

Money doubles

in 8 years and 7

months

Minimum Rs. 100, No

maximum limit

Maturity period 8 years 7 months, premature

withdrawal is possible.Nil

TimeDeposit

6.25 %-1 year

6.50 %-2 year

7.25 %-3 year

7.50 %-5 year

Minimum Rs. 200, No

maximum limit

2,3,5 years account can be closed after one year with

discounted rate of interest, account can be closed

after completion of 6 months but before 1 year with

no interest

SavingBank

Account3.5% per year

Minimum Rs. 50 any

further deposit in

multiple of Rs. 5 with

maximum balance of Rs.

100,000 in case of single

account and Rs. 200,000in case of joint account.

Withdrawal anytime without notice. Section 10

SeniorCitizenSavingsScheme

9% payable

quarterly

In multiple of Rs. 1000

and maximum of Rs.

15,00,000

Maturity after 5 years. Can be extended up to three

years after maturity. Account can be opened by

single individual who has attened the age of 60

years. Joint account can be opened in the name of

spouce only. NRI and HUF account is not

permissible. Deposit allowed through agents also.

Taxable

DepositScheme for

RetiringGovernmentEmployees

1989

7% per annum.

Scheme

discontinued

from July 2004

Minimum Rs. 1,000, any

amount in multiple

thereof, Maximum equal

to total retirement benefit

Maturity period 3 years, premature withdrawal

possible after completion of 1 yearSection 10

DepositScheme for

RetiringEmployees of Public SectorUndertakings

1991

7% per annum

Scheme

discontinued

from July 2004

Minimum Rs. 1,000, any

amount in multiple

thereof, Maximum equal

to total retirement benefit

Maturity period 3 years, premature withdrawal

possible after completion of 1 yearSection 10

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http://www.maha-ss.com/web/general/schemes/rd.php




http://www.maha-ss.com/web/general/schemes/mis.php



http://www.maha-ss.com/web/general/schemes/kvp.php



http://www.maha-ss.com/web/general/schemes/td.php


http://www.maha-ss.com/web/general/schemes/posa.php



http://www.maha-ss.com/web/general/schemes/seniorcitizen.php




http://www.maha-ss.com/web/general/schemes/dsrge.php






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Benefits of savings facilities for the poor

savings such as credit facilities are important tools for efficient liquidity management. Virtually

all people will save in any given time and face a portfolio decision with regards to different

savings options. The advantage that deposit facilities show over informal savings is a good mix

of accessibility to cash, security, rate of return and divisibility of savings. In-kind savings such

as gold, jewellery or livestock require time to be converted into cash.

From an institutional perspective, mobilizing small and microsavings can help MFIs to attain

self-sustainability.

Deposits can be an attractive source of funds as their financial costs are normally lower

than funds from the interbank market.

Small savings are also a more stable funding source than donor funds or rediscount lines

from the Central Banks. The former are generally independent from political interests

Small depositors, in general, do not intervene in the day-to-day business as most

governments and donors do if they provide funds. A similar risk of dependence might

also exist with larger savers such as better-off people and institutional savers.

Micro Finance in India

Micro-finance refers to small savings, credit and insurance services extended to socially andeconomically disadvantaged segments of society. In the Indian context terms like "small and

marginal farmers", " rural artisans" and "economically weaker sections" have been used to

broadly define micro-finance customers. The recent Task Force on Micro Finance has defined

it as "provision of thrift,credit and other financial services and products of very small amounts

to the poor in rural, semi urban or urban areas, for enabling them to raise their income levels

and improve living standards". At present, a large part of micro finance activity is confined to

credit only. Women constitute a vast majority of users of micro-credit and savings services.

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Mainstream Micro Finance InstitutionsNational Agricultural Bank for Rural Development (NABARD), Small Industries

Development Bank of India (SIDBI), Housing Development Finance Corporation (HDFC)

Commercial Banks, Regional Rural Banks (RRBs), the credit co-operative societies etc are

some of the mainstream financial institutions involved in extending micro finance.

PROMOTION :

National Savings Organisation (NSO) is responsible for national level promotion of these

schemes through publicity campaigns and advertisements in audio, video as well as print

media.

Through a large network of over 5 lakh small savings agents working under different

categories viz:

· Standardised Agency System (SAS),

· Mahila Pradhan Kshetriya Bachat Yojana (MPKBY),

· Public Provident Fund Agency Scheme,

· Payroll Savings Groups,

· School Savings Banks

CURRENT SMALL SAVINGS SCHEMES with MAIN

FEATURES:

POST OFFICE SAVINGS ACCOUNTS:

At any post office Account can be opened with a minimum of Rs. 20.Maximum of Rupees One Lakh for single holder and Rs. Two lakhs for joint holders. I

depositors have more than one account (single, pension or joint), the balances or shares of

balances in all such accounts taken together should not exceed Rs. One Lakh for each of the

depositors. There is no lock-in / maturity period prescribed. Withdrawals: Any amount subjec

to keeping a minimum balance of Rs. 50 in simple and Rs. 500 for cheque facility accounts.

Interest : Interest at the rate (s) „as decided by the Central Government from time to time‟, is

calculated on monthly balances and credited annually.

Tax treatment: Income tax relief is available on the amount of interest under the provisions osection 80L of Income Tax Act.

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POST OFFICE TIME DEPOSIT ACCOUNTS :

Types of Accounts:

· 1 Year maturity,

· 2 Years maturity,

· 3 Years maturity &

· 5 Years maturity

A deposit with a minimum of Rs. 200 with no maximum limit.

Interest : Interest, „calculated on quarterly compounding basis‟, is payable annually.

Tax treatment: Income tax relief is available on the amount of interest under the provisions o

section 80L of Income Tax Act.

POST OFFICE RECURRING DEPOSIT ACCOUNTS :

Sixty equal monthly deposits shall be made in an account in multiples of Rs.

five subject to a minimum of ten rupees.

POST OFFICE MONTHLY INCOME ACCOUNTS:

Minimum: rupees one thousand.

Maximum: rupees three lakhs in case of single and rupees six lakhs in case of joint accounDeposits in all accounts taken together shall not exceed Rs. three lakhs in single account an

Rs. six lakhs in joint account.

Income Tax relief : Income tax relief is available on the interest earned as per limits fixed vid

section 80L of Income Tax, as amended from time to time.

NATIONAL SAVINGS CERTIFICATE (VIII Issue):

Certificates are available in denominations (face value) of Rs. 100, Rs.

500, Rs. 1000, Rs. 5000 & Rs. 10,000. There is no maximum limit for purchase of thcertificates.

Interest/maturity value : Maturity value of a certificate of any other denomination shall be at

proportionate rate.Interest accrued on the certificates every year is liable to income tax but

deemed to have been reinvested.

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Income Tax relief : Income Tax rebate is available on the amount invested and interes

accruing every year under Section 88 of Income tax Act, as amended from time to time

Income tax relief is also available on the interest earned as per limits fixed vide section 80L

of Income Tax, as amended from time to time.

KISAN VIKAS PATRA :

Certificates are available in denominations (face value) of Rs. 100, Rs.500, Rs. 1000, Rs. 5000Rs. 10,000 & Rs. 50,000. There is no maximum limit for purchase of the certificates.

Tax Benefits : No income tax benefit is available under the scheme. However the deposits

are exempt from Tax Deduction at Source (TDS) at the time of withdrawal.

PUBLIC PROVIDENT FUND SCHEME :

Minimum deposit required is Rs. 500 in a financial year.

Interest : Interest at the rate, notified by the Central Government from time to time, is

calculated and credited to the accounts at the end of each financial year.

Income Tax relief : Income Tax rebate is available „on the deposits made‟, under Section 88 o

Income tax Act, as amended from time to time. Interest credited every year is tax-free.

DEPOSIT SCHEME FOR RETIRING GOVERNMENT EMPLOYEES :

One time deposit with a minimum of Rs. 1000 to the maximum of the totalretirement benefits in multiple of one thousand rupees.

Interest :Interest at the rate, notified by the Central Government from time to time, is credited

and payable on half yearly basis at any time after 30th June and 31st December every year.

Income Tax relief : Interest accrued / credited / paid is fully tax-free. Amount deposited unde

the scheme is free from wealth tax.

DEPOSIT SCHEME FOR RETIRING EMPLOYEES OF PUBLIC SECTOR

COMPANIES :

One time deposit with a minimum of Rs. 1000 to the maximum of the total

retirement benefits in multiple of one thousand rupees.

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Interest :Interest at the rate, notified by the Central Government from time to time, is credited

and payable on half yearly basis at any time after 30th June and 31st December every year.

Income Tax relief : Interest accrued / credited / paid is fully tax-free. Amount deposited unde

the scheme is free from wealth tax.

Administered Interest Rates for July 1, 2011 to March 31, 2012

Instrument Current Rate Proposed Rate(%)(%)

Savings Deposit 3.50 4.0

1 year Time Deposit 6.25 6.8

2 year Time Deposit 6.50 7.2

3 year Time Deposit 7.25 7.55 year Time Deposit 7.50 8.0

5 year Recurring Deposit 7.50 8.0

5-year SCSS 9.00 8.7

5 year MIS 8.00 ( 6 year MIS) 8.0

5 year NSC 8.00 (6 year NSC) 8.0

10 year NSC New instrument 8.4

PPF 8.00 8.2

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Growth in Small Savings Deposits vis-à-vis Bank deposits

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Figure 1: Trends in small saving collections over last twenty

year:

Advantages of Savings Accounts

Savings accounts allow you to earn interest on the money deposited. When opening a

savings account, there usually are no deposit requirements. You can add money to your

savings account without worrying about fees or penalty charges for minimum deposits.Savings accounts that have a balance of up to $100,000 are usually covered by the Federal

Deposit Insurance Corporation (FDIC). This means that if the bank closes or fails, you

will receive all money you saved in the bank up to $100,000. You should check with your

bank to make sure it is covered before depositing money.

Disadvantages of Savings Accounts

The purpose of a savings account is to save money. Some banks only allow a certain

number of withdrawals from a savings account within a set time period. Anotherdisadvantage of having a savings account, if you deposit large sums of money, is thebalance covered by FDIC. If you save more than $100,000 in one bank and it goes under,you risk losing any funds over $100,000 that was deposited. Low interest rates on savingsaccounts may not make them a suitable choice for investing. If your plan is to makemoney off your savings, a better option might be a money market account or certificate of deposit (CD).

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Conclusions:

Financial institutions that want to attract small depositors do not automatically drift away

frompoor borrowers. Good experience with small depositors can even encourage financialinstitutions toconsider them as potential borrowers. Small and microsavings are aprofitable source of funds if designed appropriately. Empiricalevidence has shown thatmobilizing small and microsavings can be a profitable business if built-inincentives instillfinancial discipline and cost-accountability.

Bibliography:

1) rbidocs.rbi.org.in/rdocs/PublicationReport.

2) planningcommission.nic.in

3) wikipedia.org/wiki/Ministry_of_Finance_(India)

4) .thehindubusinessline.com

5) http://www.moneycontrol.com

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