PPF, NSC to earn lesser now: Are government small savings schemes still attractive investment options?

Updated: March 14, 2018 18:05 IST

The interest rate on the senior citizens’ scheme is paid quarterly. (PTI)

After the government slashed interest rates on small savings schemes by 20 basis points, including NSC and PPF from January- March, many investors may be wondering if it’s still a good option to invest into these schemes. Despite the rate cut, these schemes may still be a good option, as they provide taxation benefit and also are safe investment avenues. We take a look at three such small saving options, and how much they will earn now. Sukanya Samruddhi Yojana Sukanya Samriddhi Yojana is a small deposit scheme for the girl child launched by the government of India. After the rate cut, the scheme will now earn an interest at 8.1% from 8.3% earlier. Notably, the scheme offers one of the highest rates of interest and no tax is deductible on the principal and interest even at maturity. A Sukanya Samriddhi Account can be opened any time after the birth of a girl till she turns 10, with a minimum deposit of Rs 1,000. Investments can be made in multiples of Rs 100, and a minimum of Rs 1,000 must be deposited every year. Investors will have to invest in the scheme for a period of 14 years. A maximum of Rs 1.5 lakh can be deposited during the ongoing financial year. The account can be opened in any post office or authorised branches of commercial banks. The account will remain open for a period of 21 years or till the marriage of the girl after she turns 18. To meet the requirement of her higher education expenses, partial withdrawal of 50% of the balance is allowed after the girl child turns 18. Public Provident Fund (PPF) A PPF account will now earn an interest rate of 7.6% from 7.8% earlier. PPF is another popular choice among parents and across income classes, as minimum deposit requirements are very low and affordable. A PPF account can be opened for as low as Rs 100. Investors must ensure that they put in at least Rs 500 in the year, for a period of 15 years. Failure to make the minimum annual investment will render the account inactive. The maximum deposit is pegged at Rs 1,50,000 in the year. The PPF account does not permit withdrawals until the end of 7 years. Complete withdrawal of funds is permitted only on maturity. Small Savings schemes – Revised interest rate details

Instrument	Rate of interest (old)	Rate of interest (new)	Compounding frequency
Savings Deposit	4	4	Annually
1 Year Time Deposit	6.8	6.6	Quarterly
2 Year Time Deposit	6.9	6.7	Quarterly
3 Year Time Deposit	7.1	6.9	Quarterly
5 Year Time Deposit	7.6	7.4	Quarterly
5 Year Recurring Deposit	7.1	6.9	Quarterly
5 Year Senior Citizen Savings Scheme	8.3	8.3	Quarterly and paid
5 Year Monthly Income Account	7.5	7.3	Monthly and paid
5 Year National Savings Certificate	7.8	7.6	Annually
Public Provident Fund Scheme	7.8	7.6	Annually
Kisan Vikas Patra	7.5 (will mature in 115 months)	7.3 (will mature in 118 months)	Annually
Sukanya Samriddhi Account Scheme	8.3	8.1	Annually

*The green colour signifies that interest rate on Savings Deposit and 5 Year Senior Citizen Savings Scheme has not been changed National Savings Certificate In case of National Savings Certificate(NSC) too the interest rate has been slashed by 20 basis points to 7.6%. National Savings Certificate is a government backed bond that allows subscribers to save income tax. There is no maximum limit on the purchase of NSCs, but investments of up to Rs 1 lakh in the scheme can earn a tax break under Section 80C of the Income Tax Act. These certificates can also be used as collaterals while taking loans from banks. It is to be noted that NSC comes with a lock-in period of five years. According to India Post website, “Maturity value of a certificate of INR.100/- purchased on or after 1.4.2012 shall be INR. 147.61 after 5 years.” Notably, the rates have been slashed for the January- March period, and will be revised again after that. “On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis,” the finance ministry said, while notifying the rates for fourth quarter of financial year 2017-18. According to PTI reports, the move is expected to see banks lowering their deposit rates in line with the small savings rate offered by the government.