Post Office Fixed Deposit benefits: Want to grow your money four times? Do this

Post Office Fixed Deposit benefits: This Diwali, you can take steps that will ensure your money grows over four times without any market-related risks and also help in saving income tax. While there are multiple investment options in the open market, they come with inherent risks that some individual investors don't want to take. As compared to investments in stocks or mutual funds, Kisan Vikas Patra (KVP) and Fixed Deposits are risk-free. They also provide good interest rates. Interest rates on FDs these days range from 6-8.5%. In FDs, investment can done for 1-10 years. KVP offers 7.7% interest, which is compounded annually, at present.

If you plan to grow your money four times, here's how you can use FDs and KVP. 

Post Office Fixed Deposits

Suppose you plan to invest Rs 1,00,000 on Diwali. At present, several banks are offering 7-8% interest rates. Five-year Post Office FD, or Term Deposit (TD) comes with 7.8% interest. The investment under 5-Year TD qualifies for the benefit of Section 80C of the Income Tax Act, 1961.

If you invest Rs 100,000 today in Post Office 5-year TD, you will not only get tax rebate but also be able to grow this amount to Rs 147144. After five years, you can re-invest the amount, which will rise to Rs 216,514 by the 10th year from today. Remember: You will get tax rebate only for the investment up to Rs 1.5 lakh. 

If you reinvest the money again for five years, it will further rise to Rs 318,588. Invest this amount again for five years and you can get Rs 4,68,785 by the end of 20th year. This means, your one lakh rupees on Diwali can literally grow over 4.5 times in 20 years, provided the interest rate remains same. Considering the fact that post office savings schemes are meant for encouraging people to save money, it is unlikely that the government will slash the interest rate. If it goes up, the final return may be even more. 

Kisan Vikas Patra

 You can buy KVPs from post office. This is one of the small savings schemes offered by the government. KVP was re-introduced by the government in 2014.    Another option you can explore is Kisan Vikas Patra. The money invested in KVP doubles in 112 months (9 years and four months). This means, if you invest Rs 1 lakh in KVP this Diwali, you can get Rs 2 lakh in less than 10 years. If the scheme remains open after the maturity of your first investment, you can reinvest the money. However, income on KVP would be taxable as per existing provisions. 

(* All calculations based on SBI online Fixed Deposit calculator)