New Delhi: New Delhi: Interest rates on various small savings schemes, including Public Provident Fund (PPF), Kisan Vikas Patra (KVP), National Savings Certificate, Monthly Income Scheme, Senior Citizen Savings Scheme (SCSS) and Sukanya Samriddhi Scheme (SSS), were increased by 40 basis points (bps) for the October-December quarter.

While the interest rate for post office savings deposits remain at 4%, PO time deposits for 1, 2 and 3 years will give additional returns of 30 basis points. Five-year deposits and recurring deposits will fetch 40 basis points additional return in the next quarter. One basis point is one-hundredth of a percentage point.

The hike in interest rates on small savings schemes comes after a downward trend of about six years. Interest rates for PPF was last increased in 2012-13 from 8.6% in the previous fiscal to 8.8%. Since then, interest rates had either been reduced or remained unchanged. During the January-March 2018 quarter, interest rates on PPF had touched an all-time low of 7.6%.

Interest rates of all small saving schemes are linked to government bond yields and are recalibrated on a quarterly basis. Given that bond yields crossed the 8% mark recently, there were expectations of an increase in rates of such schemes.

Though investors will earn higher income from these schemes from the next quarter, “one should look at these instruments from the long-term perspective of investment," said Lovaii Navlakhi, managing director and chief executive officer of financial planning firm International Money Matters.

Till the time the real return (interest rate minus rate of inflation) from the scheme is positive, one can consider investing in them. Other things to keep in mind are investment horizon and tax implication, he added.

Most experts are of the view that social security schemes such as SCSS and SSS are certainly good options for investment.

“Senior citizens’ savings scheme is a good investment option for senior citizens, especially for those who are in the lower tax bracket. There is no other scheme like Sukanya Samriddhi for those having a girl child. It has an emotional connect, along with tax benefits both at the time of investment and on the returns," said Navlakhi.

Though interest on Sukanya Samriddhi is lower compared to the 9.1% interest during its launch in early-2015, it still makes sense to invest in it. Higher interest is a welcome move for risk-averse investors looking to invest in debt instruments, but one should also consider the lock-in period and tax implications on returns before investing.

According to National Savings Institute, under the ministry of finance, net investment of about 503 billion were made in small savings schemes in 2016-17.

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