The government is set to fix interest rates for small savings schemes by this month-end, which include Senior Citizens Savings Scheme Account (SCSS), Public Provident Fund Account (PPF), National Savings Certificates (NSC), etc, for the next quarter starting July to September.
On the face of it, with all the drop in interest rates in the financial system, if there is another cut in small savings rates, and the PPF rate (falling below the 7 per cent mark), it will be a new low in 46 years.
The PPF scheme fetched an annual interest rate of 4.8 per cent when it was launched in 1968. The interest rates then gradually went up to an all-time high of 12 per cent in 1986 to 2000. In recent times, for the quarter April-June 2020, the government had cut interest rates on small savings schemes by up to 140 basis points, wherein the interest rate of PPF was brought to 7.1 per cent, down by 80 bps. Last year the PPF interest rate was 8 per cent in the April-June 2019 quarter, followed by 7.90 per cent in the July-September 2019 quarter.
Having said that, even with such sharp rate cuts, PPF still remains an attractive option for investors. PPF investors enjoy the tax-free EEE status along with it being practically risk-free. PPF also comes with a lock-in period of 15 years. Hence, according to experts, PPF continues to remain an ideal long-term debt product, without any unnecessary risks.
Due to the COVID-19 pandemic, the government had extended the date till June 30, for making an investment in PPF for claiming an income tax deduction for FY2019-20. The government had also made a few changes in the rules for the benefit of PPF account holders, in the last fiscal year.
Here are some of the changes that have been made to the PPF scheme:
– Even with a rate cut and fetching an interest rate of 7.1 per cent under the PPF scheme, PPF still remains an attractive option as long-term investments as bank deposits are falling sharply. For instance, SBI’s FD is currently offering up to 5.7 per cent.
– Due to the COVID-19 pandemic, the government had extended the date till June 30, for making an investment in PPF for claiming an income tax deduction for FY2019-20.
– Non-deposit of the mandatory minimum deposit in the PPF account for the year 2019-20 will not attract any penalty. No penalty or revival fee will be charged for deposits made till June 30, across all small savings schemes.
– Under the PPF scheme, investors are allowed to take a loan from the account starting from the 3rd financial year till the end of the 6th financial year. However, earlier, the interest was charged at 2 per cent on the loan taken from the PPF account, which has now been revised to 1 per cent.
– Related to the PPF account, the forms that were used for opening, closing, and other administrative work, have also been revised under the new PPF rules. According to the new PPF rules, Form 1 will be used for the opening of an account, Form 2 will be used for application for loan/withdrawal, From 3 will be used for application for closure of PPF account, Form 4 will be used for the purpose of extension of an account and Form 5 will be used for the premature closure of an account.