Sarbajeet K Sen
Moneycontrol News
Interest rates on small saving schemes, such as Public Provident Fund, National Saving Certificates and Senior Citizens’ Saving Scheme, have been coming down progressively with the government again resetting them marginally lower recently.
The cumulative fall in interest rates on the schemes has been substantial during recent times. The interest rate on PPF has come down from 8.7 per cent 2015-16 t0 7.8 per cent, while SCSS has interest rate has dropped from 9.3 per cent to 8.3 per cent during the same period. Interest rate on Sukanya Samriddhi Account Scheme, the scheme for the girl child has dropped from 9.2 per cent to 8.3 per cent, while NSC is giving lower return of 7.8 per cent against 8.5 per cent in 2015-16.
Are you worried over the trend and unsure whether you should increase your investment in these schemes? “Over long term, one should consider other investment options as well to plan for retirement corpus in order to get inflation beating returns. In the long run, chances are there that investments in small saving schemes may not be able to get good interest rates as compared to other investment options available in the market. People between the age group 25-45 years can also choose other routes like SIP's (Systematic Investment Plan) in equity mutual funds,” Sushil Jain, National Head Financial Planning, Bajaj Capital told Moneycontrol.
If you are nearing retirement or are retired, Jain suggests continuing investment in these schemes “People between the age of 55-65 years – nearing retirement or retired can continue investing in such small saving schemes as interest on such schemes is coming down very gradually and they can get assured returns by investing in such schemes along with tax benefits” he said.
However, For those keen to invest in these relatively less risky small saving schemes, Jain advises having a limited exposure in the overall investment portfolio. “While the investment amount would differ from individual to individual, one should not go with more than 20% of the investment amount in small saving schemes options,” Jain advises.
In a recent report on small saving schemes, rating agency ICRA had, however, pointed out these schemes remain more attracting that deposit scheme of banks. “In the prevailing scenario of excess inter-bank liquidity, the stickiness in small savings rates has not hindered a fall in banks’ deposit rates, unlike in previous phases of tighter liquidity. The limited decline in small savings rates has also made them relatively more attractive, compared to bank deposits,” it had said.
The interest rates on small saving schemes are linked with 10-year government bond yield which gets revised in every quarter. The linking of small savings scheme interest rates to average G-Sec yields of corresponding maturity was done to make them more market-aligned.
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