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MUMBAI : The government on Wednesday slashed interest rates on Public Provident Fund (PPF) and other small savings schemes for the June quarter.

The PPF rate was cut to 6.4% from 7.1% and the rate on National Savings Certificates (NSCs) was reduced to 5.9% from 6.8%.

The Senior Citizens Savings Scheme (SCSS) saw its rate cut to 6.5% from 7.4% and the Sukanya Samriddhi Scheme, which was the highest-paying small savings instrument, saw its rate reduced to 6.9% from 7.6%. Also, the Kisan Vikas Patra (KVP), which has a tenor of 124 months, will now mature in 138 months. This amounts to a rate cut of 6.2% from 6.9%.

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The cut in interest rates on small savings schemes will allow banks to pass the benefit of lower policy rates to borrowers.

While bank deposit rates have fallen sharply, interest rates on small savings schemes have remained high, making them more attractive.

Other small savings products with interest rate reductions include post office term deposits, post office savings accounts and post office monthly income scheme (POMIS). The rates on post office term deposits were reduced from 5.5%-6.7% for tenors of 1-5 years to 4.4%-5.8%. The post office savings account saw its rate reduced from 4% to 3.5%.

Interest rates on small savings schemes are reviewed every quarter. They were kept unchanged for the whole of FY21 after major cuts in April 2020 for last year’s June quarter. The interest rate on the government of India savings bonds (taxable), also popularly known as the RBI bonds, is linked to the NSC interest rate. As a result, this too will fall in June 2021 from 7.15% to 6.25%, a cut of 90 basis points.

“Among the various schemes now, SCSS and Sukanya Samriddhi are still attractive compared to bank fixed deposits (FDs). PPF also retains a strong advantage due to its tax-exempt status. That rate has not been cut. Investors should not use this as a reason to get into risk debt funds or even equity. Also, stay away from low-rated corporate fixed deposits," said Kalpesh Ashar, founder of Full Circle Financial Planners and Advisors, an investment advisor firm.

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