Home >Money >Personal Finance >Small savings schemes like PPF, NSC and SSCS see big cuts in rates

Millions of Indians will earn less from their small savings schemes in the April-June quarter, with the government on Tuesday slashing interest rates on these popular schemes in a falling rate cycle.

Interest rate on Public Provident Fund (PPF), Kisan Vikas Patra (KVP) and National Savings Certificate (NSC) will earn 70 to 140 basis points less during the June quarter. One basis point is one-hundredth of a percentage point. Since April 2016, interest rates of all small saving schemes have been linked to government bond yields, and are readjusted every quarter.

Investments in PPF schemes will earn 7.1% against 7.9% in the March quarter, the five-year National Savings Certificate will return 6.8% against 7.9% earlier, KVP 6.9% against 7.6% earlier, Sukanya Samriddhi Account 7.4% against 8.4% earlier, five-year Senior Citizens Savings Scheme 7.6% against 8.6% earlier, five-year Monthly Income Scheme 6.6% against 7.6% earlier, term deposits of 1-5 years 5.5-6.7% and a five-year recurring deposit will earn 5.8%.

A cut in small savings schemes was expected after the Reserve Bank of India last week cut the repo rate (at which RBI lends money to banks) by a steep 75bps in an attempt to soften the blow from the covid-19 outbreak. Still, Tuesday’s cut was sharper than expected. “The rate cut is more than expected. The government has probably done this to drive down deposit rates further," said Soumya Kanti Ghosh, group chief economic adviser at State Bank of India.

Those who depend primarily on income from these schemes may now need to revisit their portfolio. “This was bound to happen. Time has come to look beyond these traditional investments; I would not suggest that you straight away start investing in direct equity. Fortunately, if you look at mutual funds, for example, there are many hybrid funds to consider. You need to give yourself a chance to get higher return now. At the same time, you need to keep an eye on your risk profile," said Hemant Rustagi, chief executive officer, Wiseinvest Advisors, a financial planning firm.

Individuals with investments in fixed deposits or small savings schemes should consider the real rate of return from these instruments before investing.

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