Both the Public Provident Fund (PPF) and National Savings Certificate (NSC) are up for some change now. After months of delay, the government has announced higher interest rates for PPF and NSC.
With this move, small saving schemes can now offer some competition to other investment avenues in the fixed income category like fixed deposits which are currently giving a higher rate of return to investors.
These higher interest rates will generate more cash for investors and even for the government.
Public Provident Fund (PPF)
The return on the Public Provident Fund has gone up from 8% to 8.6% per annum.
Along with the return, the Public Provident Fund limit was also raised from 70,ooo Rs per year to Rs 1 lakh. So what is the impact of this increase ?
If you were to invest Rs 70,000 each year for 15 years and if this were to give you 8% per annum, then at the end of the 15 years you would have Rs 20,52,700 in your kitty.
In the current scenario, if you invest Rs 1 lakh for 15 years at 8.6% rate of return, then at the end of 15 years, you will have Rs 30,90,110 with you. That is a significant amount of approximately Rs 10 lakh that you can earn in the new scenario.
National Savings Certificate (NSC)
The return on the NSC has gone up from 8% to 8.4% per annum. NSCs are instruments with six year lock ins with semi annual compounding and a minimum investment of Rs 100 and an unlimited maximum limit.
In fact the government has said that the maturity of the NSC will be reduced to 5 years from the current 6 years. At the same time, NSCs with 10 year maturity will be introduced as well. This will fetch the investor 8.7% rate of return.
Other small saving schemes
The dailies report that the Kisan Vikas Patra is going to be discontinued.
Agent commissions on PPF and senior citizen schemes will be discontinued.
The interest rate for 5 year Monthly Income Scheme is now 8.2%, up from the present 8%. The maturity period of these have been cut from 6 years to 5 years.
5 year NSC will fetch 8.4% while 10 year NSC will fetch 8.7%.
Interest rates on post office savings account has not been increased from 3.5% to 4%.
1 year fixed deposit in Post Office is now 7.7%, up from 6.25%.
2 year fixed deposit in Post Office is now 7.8%, up from 6.5%.
3 year fixed deposit in Post Office is now 8%, up from 7.25%.
5 year fixed deposit in Post Office is now 8.3%, up from 7.5%.
5 year recurring deposit in Post Office is now 8%, up from 7.5%.
Update as of Nov 15th 2011 :
It looks like the interest rates of these small saving schemes are not fixed for their entire tenure but will be decided year on year at the beginning of every financial year. They are now linked to the yield of the government bonds. So lookout for the rates in the future.