News: Small savings schemes' interest rates slashed. Should you continue with your investments?-06-04-2020
Updated On: Apr 06, 2020
Investors in PPF and Sukanya Samriddhi Yojana will see the impact immediately as lower rates will be applicable on accumulated balance. However, investments made in NSC, SCSS and others prior to the announcement would be shielded from the cut.
Interest rates on popular small savings schemes have been cut drastically for the April-June 2020 quarter. Investors utilising these avenues predominantly should be prepared to earn a lot less than what they are used to.
Investors in PPF and Sukanya Samriddhi Yojana will see the impact immediately with the lower rates also applicable on accumulated balance in their account. PPF investors will fetch 7.1% compared to 7.9% earlier while those putting money in Sukanya Yojana will earn 7.6% compared to 8.4% earlier.
However, investments made in NSC, SCSS, Kisan Vikas Patra and others prior to the announcement would be shielded from the cut. Only investments starting 1 April 2020, would fetch lower rates. Those retiring now will particularly feel the pinch of the cut with interest rate for Senior Citizens’ Savings Scheme falling from 8.6% to 7.4%. The NSC too will see rates slide from 7.9% to 6.8%.
Small savings schemes see sharp cut for the quarter
* Real rate of return based on average 4.4% CPI over past one year
While this sharp cut may seem unfair to most, it is pertinent to note that it has been expected for some time now. Since 2015, small savings schemes have been moved to a market-linked regime, where interest rates are supposed to be revised quarterly in line with corresponding change in yields on the government securities. However, in recent years, the government had not responded with rate cuts in proportion to the decline in yields on relevant government securities. This time, however, a sharp downward revision of interest rates by the central bank has prompted the government into finally biting the bullet.
However, experts reckon that investors should continue investing in these instruments. With inflation also remaining benign, the real rate of return (adjusted for inflation) from these instruments continues to remain high.
