Small savings schemes, which give the twin advantages of a government guarantee and various tax benefits, have been the automatic choice for most investors for their debt portfolios
The Central government last week (April 1, 2021) provided a major relief to lakhs of investors in small savings schemes by withdrawing its previous rate cut order. Union Finance Minister Nirmala Sitharaman had said that interest rates for all saving schemes — which existed in the last quarter – would continue. “Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter of 2020-2021, ie, rates that prevailed as of March 2021. Orders issued by oversight shall be withdrawn,” Sitharaman had tweeted. A day before, steep cuts in rates of various small savings schemes like PPF, SCSS and NSC were reported.
Now that the small savings scheme interest rates remain unchanged for the ongoing quarter, a large number of people are curious to know whether these schemes are still good for investing. Shouldn’t one go for mutual funds or equities for better returns? We talked to Rachit Chawla, CEO & Founder, Finway FSC, to find an answer.
Chawla said these small savings schemes are good for a safer bet.
“Small savings schemes, which give the twin advantages of a government guarantee and various tax benefits, have been the automatic choice for most investors for their debt portfolios,” Chawla told FE Online.
“SCSS is designed to give a higher return than comparable schemes and deposits of similar tenure and risk profile continue to be attractive options for investors looking for income in their retirement years or for accumulating the corpus for a goal, whether or not the tax benefits are availed. PPF, too, has been a favourite with investors in small savings schemes for the long-term compounding benefits it provides and the exemption from tax at all three stages of investment—at the time of making the investment, when interest is earned and on maturity—giving it the EEE (exempt-exempt-exempt) status,” he added.
According to the Finway founder, products like NSC may become less attractive without the tax benefits. “Investors who used NSC for building an income ladder or to accumulate a corpus for short-term needs may be better off with other options,” he said.
Who should invest small savings schemes?
“People who don’t want to take the risk and wants to protect the capital can keep it safe. I think these are great options available in the market. People who are slightly higher in age bracket, who do not want to take risk on their capital where they get consistent descent returns at the lower level but the capital is very safe, ultra-safe, I would say. Those are the people should go for this,” said Chawla.