After being relegated to the sidelines in the last few years, small savings schemes are now staging a comeback of sorts. Several changes have been incorporated in recent times, to enhance the attractiveness of small savings schemes.

For example, the Post Office Monthly Income Scheme (POMIS) ranks as a popular scheme that offers assured returns (at 8% per annum) on a monthly basis. This makes the scheme apt for investors seeking regular income.

Not too long ago, the investment limits for POMIS were hiked from Rs 300,000 (for a single account) and Rs 600,000 (for a joint account) to Rs 450,000 and Rs 900,000 respectively. This augured well for investors like senior citizens and retirees who afford importance to regular income.

A press release issued by the ministry of finance earlier this month, mentioned that the bonus on investments in POMIS has been restored (albeit partly). To begin with, the scheme offered a 10% (of initial amount invested) maturity bonus; however, the same was discontinued.

As per the press release, investments in POMIS made on and after December 8, 2007, are eligible for a 5% maturity bonus. And there's more in store.

• Small Savings Schemes: An overview

The gamut of investment avenues eligible for tax benefits under Section 80C stands widened. The press release also mentions that with a retrospective effect (from April 1, 2007), investments in the Senior Citizens Savings Scheme (SCSS) and 5-Yr Post Office Time Deposits are eligible for tax benefits under Section 80C of the Income Tax Act. Clearly, the changes have provided the small savings segment a much-needed shot in the arm.

What should investors do?

At Personalfn, we have always maintained that while investing, not losing sight of one's risk profile is imperative. The aforementioned changes will go a long way in helping risk-averse investors adhere to their risk profile while investing.

Risk-averse investors often grudge the lack of adequate suitable investment opportunities; then there is the need for regular and assured income which has to be addressed. With the enhanced investment limits in POMIS, this issue has been dealt with to some extent. Senior citizens and retirees can now invest up to Rs 1,950,000 in the SCSS and POMIS, and earn a (taxable) income of up to Rs 171,000 per annum to meet their liquidity needs.

The tax benefits on SCSS and the restored maturity bonus on POMIS will make the investments more attractive.

From a tax-planning perspective, the risk-averse investor now has more to choose from. Earlier, Public Provident Fund, National Savings Certificate, infrastructure bonds and tax-saving fixed deposits from banks were the available avenues. 5-Yr Post Office Time Deposits and SCSS (albeit the scheme isn't open for investors across the board) are new additions.

With more attractive and a wider range of offerings to choose from, the onus to make the right choice now lies with investors.

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