For the quarter 1 of FY 2020-21, the government had slashed rates of small savings schemes by 0.7-1.40%. If the government had cut rates for this quarter as well in the similar fashion, then PPF would have fetched returns below the 7 per cent mark - a 46-year low.
Since 1 April, the 10-year bond yield has till now averaged 6.07% and currently stands at 5.85%, which clearly means a rate cut is in the offing for small savings schemes.
Short-term deposit rates are now very close to or even less than what savings bank accounts offer.
Rates of these schemes have been slashed by between 70 bps and 140 bps for the Apr-June quarter.
During the current quarter, the government refrained from cutting interest rates on small savings schemes, such as Public Provident Fund (PPF) and National Savings Certificate (NSC), despite moderating bank deposit rates.
For the quarter ending March 2020, small savings schemes such as the Public Provident Fund (PPF), National Savings Certificate (NSC) will continue to fetch same interest rate. PPF will continue to earn 7.9 per cent during the quarter January to March 2020.
According to PPF rules, the interest is calculated on a monthly basis but it is credited into the account at the end of financial year on March 31.
Interest rates on small savings schemes are due for recalibration next week, but analysts believe the government might avoid making steep cuts.
This is a welcome relief for fixed income investors as rates have remained unchanged for previous 2 quarters.
Even if the EPF rate is cut, the difference would remain substantial thereby disadvantaging the self-employed class in terms of retirement savings.
The interest rates of the PPF and other small savings schemes have been cut. Here is a low-down on the other options before investors.
A sustained decline in bond yields has pushed up NPS returns. Gilt funds earned 17-20% in past one year.
Analysts said the market is expected to stay volatile and witness value buying during each dip.
As per new, revised rules, the interest rate on a PPF loan is charged at one percent per annum.
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The small savings rates may be revised downwards at the reset date post June 30 as not only has the RBI cut the repo rate but also the 10-year G sec yield has declined.
One must carefully plan for the hard-earned money instead of splurging it on one-off expenses.
The government has with effect from March 7, 2017, liberalised conditions for taking advance from the GPF for education, illness and purchase of consumer durables.
Every time markets fall, investors flock to fixed income options. Though small savings rates have been hiked, don’t go overboard investing in them.
Jaitley on Sunday defended the government's decision to slash interest rates on PPF and national small savings, saying this was part of a routine procedure.
The actual annualised returns of financial instruments vary from the quoted rates due to different methods of calculations involved and taxation rules.
Although the government has slashed interest rates on small savings by up to 1.3 per cent, bankers are unlikely to reduce rates on deposits and advances anytime soon. The rate cut on small savings was aimed at preventing the flow of money from banks to post offices and thus pave the way for effective monetary transmission. It remains to be seen if it works that way.
Borrowers have welcomed the rate cut and also RBI’s effort to push for increased transmission. However, it is creating a dilemma for the debt investors.
In a blow to your investment income plans, govt has reduced interest rates on small savings schemes and PPF by 0.10% from April 1.
PPF has been a favourite investment plan with tax savers for some time now. Interest rate on PPF for this fiscal stands at 8.7%.
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Here are articles on how to calculate your PF balance, how to check your EPF balance, benefits of linking your EPF to your Aadhaar and so on.
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Choose an option that fits into your overall financial plan, not because it offers good returns or your brother-in-law is selling it.
All options are graded on the basis of returns, safety, liquidity, flexibility, taxability, and cost of investment; & ranked according to composite scores.