For the quarter starting October, rates on these schemes will increase by 30-40 basis points. One basis point is equal to one-hundredth of a percentage.
Investors in Small Savings Schemes (SSS) such as Public Provident Fund, Kisan Vikas Patra, National Savings Certificate, etc, have a reason to cheer. For the quarter starting October, rates on these schemes will increase by 30-40 basis points. One basis point is equal to one-hundredth of a percentage.
As per the government announcement, from October, the rate on Public Provident Fund (PPF) will rise to 8 per cent from 7.6 per cent, on five-year Senior Citizen Savings Scheme to 8.7 per cent from 8.3 per cent, five-year National Savings Certificate to 8 per cent from 7.6 per cent, Sukanya Samriddhi Account Scheme (SSAS) (deposit for girl child) to 8.1 per cent from 8.5 per cent, and Kisan Vikas Patra to 7.7 per cent from 7.3 per cent. In case of Kisan Vikas Patra, the maturity tenure has been reduced to 112 months from 118 months.
Rates on post-office time deposits have also been increased.
"In some cases," says Adhil Shetty, co-founder and CEO of BankBazaar.com, "your returns from fixed-income instruments and small savings may not be enough to beat inflation. So consider investing in tax-efficient instruments such as PPF and SSAS, because that makes your returns tax-free. Therefore, your absolute returns are higher in comparison to returns from other schemes."
The investment under PPF is exempt from tax deduction under Section 80C and the interest is tax-free too, making it attractive for retail investors. In comparison, interest from banks and company fixed deposits (FDs) is taxed. But these can be withdrawn as and when required, compared to PPF's 15-year lock-in period.
Although the Small Savings rates are market linked and liable to reset every quarter, they have remained unchanged since January 2018. In this period, the Reserve Bank of India increased repo rates by a total of 50 basis points since June 2018 and State Bank of India, the largest bank, increased the rate on one-year FD from 6.25 per cent to 6.7 per cent, an increase of 45 bps. Similarly, corporate deposits, too, increased by about 30 bps in the calendar year. Currently, rates for one-year corporate FDs range from 7.6 per cent to 8.25 per cent. There have also been a spate of non-convertible debentures issuances offering 8-9 per cent yields and above.
According to Malhar Majumder, partner and consultant at Positive Vibes Consulting & Advisory, small savings instruments will appeal to investors looking for consistent returns and security. "There is a likelihood of rates rising further, given the volatility in the rupee. Keeping that in mind, it would be advisable not to invest all your funds at the current PPF rate of 8 per cent,'' he said.
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"In some cases," says Adhil Shetty, co-founder and CEO of BankBazaar.com, "your returns from fixed-income instruments and small savings may not be enough to beat inflation. So consider investing in tax-efficient instruments such as PPF and SSAS, because that makes your returns tax-free. Therefore, your absolute returns are higher in comparison to returns from other schemes."
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