At a time when the government resets the interest rates of small savings every quarter depending on the bond yields, risk-averse investors still prefer investing in schemes like Public Provident Fund (PPF) to build retirement corpus or in Sukanya Samriddhi Account (SSY) to accumulate for daughter’s higher education and marriage or post office recurring deposits for disciplined investment.
Data from National Savings Institute show that gross collection under National Savings Scheme (NSS) grew 46% year-on-year (y-o-y) from Rs 3,04,733 crore in FY15 to Rs 4,45,974 crore in FY16. In February 2016, the government notified that the interest rates of small savings schemes will be reset every quarter based on the G-Sec yields of the previous three months as the small savings interest rates were perceived to limit the banking sector’s ability to lower deposit rates in response to the monetary policy of Reserve Bank of India. The rule became applicable from the first quarter of 2016-17 .
In FY17, gross collections grew 16% y-o-y to Rs 5,16,000 crore and in FY18, it grew 15% to Rs 5,92,710 crore. In FY19, till November 2018, the gross collection is Rs 4,01,060 crore.
As the gap between the small saving interest rate — average of PPF and SSSA rate —and the average bank term deposit (>1 year) still remains around 98 basis points.
For PPF and SSA, individuals will have to invest at least Rs 500 and 250, respectively in a financial year (by end of March). If that is not done then the account becomes dormant. Experts say many a times investors forget to deposit the minimum amount and then the account becomes dormant.
Here are the various rules investors should follow if any of their small savings accounts become dormant.
Public Provident Fund
A resident Indian can open a PPF account and even a second account in the name of a minor, but the maximum investment limit will be Rs 1.5 lakh for all accounts taken together. The PPF account matures after 15 years and can be renewed every five years. The minimum amount of investment is Rs 500 in a financial year. If an individual fails to contribute the minimum amount in the PPF account for a year, it would then become dormant.
To make the dormant account active, the account holder will have to give a written request in the branch of the post office/bank where the account is held. A penalty of Rs 50 and Rs 500 (the minimum amount) will have to be paid for every dormant year. Then after verification, the account will be reactivated and contributions can be made.
A dormant PPF account will also mean that the subscriber will not be able to get certain benefits. A subscriber with an active PPF account is eligible to avail loan of one-fourth of the balance amount available, from the third to the sixth financial year after opening the account. In case the account is dormant, the subscriber will not be able to get the loan. Even partial withdrawal after the completion of the seventh financial year since account-opening will be available in a dormant account.
Moreover, if the account is dormant, the subscriber will not be able to withdraw the full amount at maturity after 15 years. However, the money already deposited in the dormant account will continue to earn interest till maturity as per the interest rate decided by the central government. To withdraw the maturity amount in case of a dormant account, the subscriber will have to pay the penalty and minimum amount for the dormant period.
Sukanya Samriddhi Account
In January 2015, the central government launched SSA. The minimum yearly deposit required under the popular girl child savings scheme is Rs 250. The maximum amount of investment is Rs 1.5 lakh in a financial year. A guardian can open only one account in the name of one girl child and a maximum two accounts in the name of two different girl children. It can be opened in the name of a girl child till she attains the age of 10 years and deposits can be made up to 14 years from the date of opening of the account. The account can be closed after completion of 21 years.
Partial withdawal up to 50% of the balance at the end of the preceding financial year, can be made after the account-holder attains the age of 18. Premature closure will be allowed after completion of 18 years /provided that girl is married.
If the minimum amount of Rs 250 is not deposited in a financial year, the account will become dormant and can only be revived with a penalty of Rs 50 per year along with the minimum amount for deposit for all the dormant years. Given the fact that these accounts are for long-term, a subscriber must must remember to contribute at least the minimum amount every financial year to keep the account active.
