Last week, the interest rate for PPF, Sukanya Samriddhi Scheme, Senior Citizen Savings Scheme, NSC and other small savings schemes were cut by 0.1% p.a.
Let’s look at what the rates are.
Latest Interest Rates for PPF and other Small Savings Schemes
I am copying a snapshot from Ministry of Finance notification dated June 30, 2017. Here are the latest interest rates.
Points to Note
- These interest rates are revised every quarter by the Ministry of Finance every quarter.
- For PPF and SSY, the revised interest rate is what you will earn during July-September, 2017 quarter. Therefore, the hit will be immediate.
- For SCSS and Time Deposits, the new rates are applicable only to new deposits opened (after June 30, 2017) under such schemes.
- Existing SCSS and Time Deposits will continue to earn the same rate of interest as contracted at the time of opening such deposits. You will take the hit only if your deposits are due for renewal or have to be rolled over.
What should you do?
As you are an investor in PPF or SCSS, you are likely to be miffed with a cut in interest rate.
However, I suggest you live with it.
Interest rates move in cycles and we seem to be in a phase where interest rates have gone down and may go down even further.
Interest rates have been going down for the last couple of years. 10-year Government bond yield is hovering around 6.5% p.a. And rates of small saving scheme rates are linked 10-year bond yields.
If you are investing in PPF, 7.8% p.a. tax-free return is not bad given the level of headline inflation. I do realize many of us experience much higher rate of inflation.
But that’s the way it is.
It is not that only small saving scheme rates are going down. Bank Fixed deposit rates have also gone down. Debt funds with shorter maturity should also see lower returns (but you have a few other variables here).
What should you not do?
Whenever PPF interest rates go down, there is increased clamour for moving away from PPF and shifting your investments to equity funds. Do not fall for such advice.
Such advice may come due to lack of knowledge or due to some vested interests. I have considered this aspect in greater detail in this post.
You need to have both equity and debt in our portfolio. The allocation may vary depending on your risk appetite and investment horizon. And PPF makes for a good debt product and can be useful for some of your goals.
Do not stop your investments in PPF just because the interest rate has been cut by 0.1% p.a.