The uncertain time will make investors in PPF see that they have not seen for nearly half a century with rates slashing to below 7%. For the ongoing quarter, the centre slashed PPF interest rate by a steep 80 basis points or 0.8% to 7.1% from the earlier 7.9% per annum.
The rates on all small savings schemes that are government backed are revised quarter on quarter based on benchmark bond yield. And with these rates hitting new lows, the current rates on these schemes shall not be sustainable. Currently the 10-year bond yield is hovering around levels of 5.839%.
In the previous revision, when the yield pegged at 6.42% there was revision by 80bps in PPF or public provident fund rate.
How are interest rates on small savings schemes determined?
It is to be noted for every quarter the rates on small savings schemes are announced just before the quarter commencement basis the average bond yield for the quarter which as of now stands at 5.85%
What can you do as lower rates on small savings is highly likely to come by?
Investors can't do anything about PPF or Sukanya Samriddhi as rates for an investor change as and when the rates are revised. But prospective investors who have some investible surplus can lock in current rates in case of NSC, KVP and SCSS.
Notably despite the fall in rates which is in line with rate on short term deposits, what makes sense to consider investment in such schemes is that real return from the avenue is still positive given lower inflation cost. But inflation concerns now mount given the Covid 19 blow, which has pushed both fuel and food inflation.
Small savings interest rate for April-June quarter
|Small savings instrument||Interest rate in the previous qtr||Interest rate from April-June 2020|
|Kisan Vikas Patra||7.6%( with maturity in 113 months)||6.9% (with maturity in 124 months )|
|1-year time deposit||6.9%||5.5%|
|2-year time deposit||6.9%||5.5%|
|3-year time deposit||6.9%||5.5%|
|5-year Time deposits||7.7%||6.7%|
|Senior citizen savings scheme||8.6%||7.4%|