These post office schemes are profit machines, but do not be hasty in investing money, know these 5 most important things before investing.

Small Savings Schemes run by the Indian Postal Department have been the first choice for safe investors across the country. Due to sovereign guarantee (government security), fixed returns and better interest rates than bank FD, people often consider it a risk-free option. Schemes like Sukanya Samriddhi Yojana (8.2%), Senior Citizen Savings Scheme (8.2%), National Savings Certificate (7.7%), Kisan Vikas Patra (7.5%), Monthly Income Scheme (7.4%) and Public Provident Fund (7.1%) have been winning the trust of investors for a long time. But often people lock a huge amount without complete information after seeing the advertisements and only the headline of ‘High Returns’. If you too are going to invest your hard earned money in any post office scheme, then it is very important to understand these 5 bitter truths and technical rules.

Most of the post office schemes come with long lock-in periods. For example, PPF remains locked for 15 years, NSC for 5 years and Sukanya Samriddhi account till the child turns 21. If you suddenly need money for any medical emergency, children’s education or household work, then you cannot easily withdraw money from these accounts. In the meantime, the rules for partial withdrawal are also quite strict and they are applicable only after certain conditions are fulfilled. Therefore, never invest your entire emergency capital in these long-term plans.

If under any compulsion you decide to close the account before maturity, then the post office rules are quite strict.

• Monthly Income Scheme (MIS): If you close the account within 1 to 3 years, 2% of the principal amount is directly deducted. On closing between 3 to 5 years, 1% of the principal amount is deducted.

• Time Deposit (TD): Withdrawal is not allowed before 6 months. If closed between 6 months to 1 year, only 4% interest is available on the ordinary savings account, all other benefits are lost.

• Senior Citizen Scheme (SCSS): If the account is closed within 1 to 2 years, 1.5% and if closed after 2 years, 1% of the principal amount is deducted as penalty.

Assess your financial needs before making a rash investment so that you don’t have to suffer a loss on your savings due to penalties.

There is a common belief among investors that all the money from government schemes is tax-free, which is completely wrong. Only PPF and Sukanya Samriddhi Yojana (SSA) fall in the ‘EEE’ (Exempt-Exempt-Exempt) category, where the investment, the interest earned on it and the maturity amount are completely tax-free.

• On the contrary, MIS, KVP and Time Deposit of 1 to 3 years But no exemption is available under Section 80C of the Income Tax Act.

• SCSS, 5-Year TD and NSC You get 80C exemption on investments in FDI, but the interest earned from them is added to your annual income and is taxed as per your respective tax slab. If you fall in the 20% or 30% tax bracket, your net return after deducting tax (Post-Tax Return) reduces significantly.

The Finance Ministry of the Government of India reviews the interest rates of post office small savings schemes every quarter. However, in schemes like NSC or Time Deposit, the interest rate as on the date the account is opened is locked in for the entire tenure. But Public Provident Fund (PPF) and Sukanya Samriddhi (SSA) In floating rate schemes like this, the new interest rates announced on quarterly basis are implemented immediately. This means that if government bond yields fall in the future and interest rates are reduced, your returns on these long-term accounts may also reduce.

Although the Department of Posts has implemented Net Banking, Mobile Banking and Core Banking Solutions (CBS), most of the old branch post offices still require personal presence for processes like check clearance, passbook entry, nominee updation and maturity claims. Many times, it takes a long time to transfer the account from one city to another or to submit the original certificate at the time of maturity. Like private banks or modern fintech apps, it is not possible everywhere to get a completely digital service in just a few seconds.

• Set goals and deadlines: If you have a safe horizon of more than 5 years and want to build tax-free wealth, then PPF and Sukanya Samriddhi are the best options.

• For regular monthly income: Monthly Income Scheme (MIS) or Senior Citizen Scheme (SCSS) is a secure source of cash flow for retired people.

• Keep an emergency fund aside: Keep an amount equal to at least 6 months’ expenses in liquid funds or a normal bank savings account, so that there is no need to break the post office fixed accounts midway.