There’s good news for those sticking to their small saving schemes as the government has decided to keep the interest rates stagnant. With a lower savings rate and strong inflation, which started in April 2020, the investors were contemplating a further decline in the interest rates and reduced profits.
But now, investors in small strategies have no alternative but to stick to it in order to reap good returns as compared to fixed deposits in banks.
A government circular confirming that the interest rates on small savings schemes will remain unchanged until the end of the financial year 2020-21, was released on December 31.
As per that, Public Provident Fund (PPF) will fetch 7.1 percent interest rate while Senior Citizens Savings Scheme (SCSS) will earn 7.4 percent interest. Other schemes like post office time deposits will get around 5.5-6.7 per cent, National Savings Certificate will earn 6.8 percent and so on for other schemes.
There has been a drastic fall in the returns since April 2020. For instance, funds in PPF were getting an interest rate of 7.9 percent compared to a current 7.1 percent.
Inflation in price inflation has hovered above the higher end of 6 per cent acceptable limit of the Reserve Bank of India during the fiscal year, touching 6.93 percent in November 2020. Post that, the interest rates have nearly stayed up with inflation on the small savings scheme.
There have been assumptions that the interest rates on small savings schemes would be reduced like the fixed deposit rates, but the government’s decision to keep them static has come as a breather for investors. The unchanged interest rates make these schemes appealing in the fixed income sector.
With a stable interest rate of 7.15 per cent, RBL Floating Rate Bond is among a strong choice for the investors. However, it is important to track any incremental change in hybrid funds that have the potential to overcome inflation by equity. Investors would hope inflation to decrease and earn good returns from their savings.
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