A Small Cut For Small Savings Schemes

  Author: Jai Prakash

The new financial year hasn’t really got to an ideal start for investors in Small Savings Schemes. The government has lowered interest rates on these schemes. The saving grace has been that the fall has been marginal. The cut has been typically 10 basis points or 0.1 percentage points. One can attribute the cut in Small Savings Scheme rates to yields in government bond yields. Interest rates on Small Savings Schemes are linked to government securities’ yields and those yields have been going down sharply over the past year.

Interest rates of Public Provident Fund (PPF) and National Savings Certificate (NSC) has been lowered from 8.0% to 7.9% per annum. The PPF rates are now at their lowest since 1980. Interest for the 5 year Senior Citizens Savings Scheme and Sukanya Samriddhi Scheme, a deposit plan for the girl child, has been cut from 8.5% to 8.4%. Further, rates for 1-5 year deposits are now between 6.9- 7.7% cent while that for a five-year recurring deposit stands at 7.2%.

Still a preferred investment avenue Despite the marginal cut, Small Savings Schemes will continue to attract investors since they are likely to be more rewarding than bank fixed deposits in the near future. Also, for many, with its tax deduction for contribution, interest and maturity proceeds, besides high level of perceived security due to government backing, PPF will still remain a preferred investment avenue for many investors.