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Small saving schemes remain the best risk-free investment options

No rate cut for July-September quarter after a massive 70-140 bps reduction in March

July 02, 2020 / 09:36 AM IST

Investors in popular small saving schemes such as Public Provident Fund (PPF), Sukanya Samriddhi Account (SSA) and Senior Citizens Savings Scheme (SCSS) can heave a sigh of relief.

Despite talk of reducing interest rates on these popular schemes, particularly on PPF, due to prevailing benign interest rates, the department of posts has decided to not tweak rates for the July-September 2020 quarter. In March, the interest rate on the highly popular PPF was slashed by 80 basis points to 7.1 per cent, while SCSS saw an even steeper cut of 120 bps, from 8.6 per cent to 7.4 per cent.

Attractive rates retained

Even though small saving schemes’ interest rates have been linked to government security yields since 2011 and are reviewed every quarter, rarely do they move in tandem with market realities to protect small savers’ interests.

These schemes remain attractive not only due to their rates of return, which are higher than those on other comparable debt instruments, but also because of the sovereign guarantee-backed security they offer. Banks have been reducing their fixed deposit rates in line with the Reserve Bank of India’s policy action on slashing repo rate by 115 bps cumulatively since March 27. Currently, the State Bank of India’s (SBI) deposits (less than Rs 2 crore) with tenure of five to ten years carry an interest rate of 5.4 per cent. Senior citizens are offered a higher rate of 6.2 per cent.
Preeti Kulkarni
first published: Jul 2, 2020 09:32 am
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