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.
PPF and NSC 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 PPF and NSC interest rates and other small saving schemes interest rates 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.
Very Informative…….. Thaks for the informations :)….
I think yet NSC is not so popular….. there might be some reasons for it.
@Chirag, Glad you liked it Chirag.
Hi,
I would like to know all the above changes in interest rate is applicable for existing schemes too or it is applicable from this month onwards for the newly opened accounts or schemes. I have one PPF opened on Sepetember 2011. How would be the interest calculated for that. Can I make an investment of 1 Lakh per annum in that account as per current changes. expecting your valuable reply. Thanks in advance.
@Ranjith, Yes, the changes would be applicable to both new as well as existing accounts.
It’s good to see that the interest rates for PPF, NSC and other schemes have seen a upward movement which was pending for some time now. The question one needs to ask himself/herself is whether such schemes are really required if one has adequate exposure to debt funds via employer provided PF and other means.
@Jaswinder Singh,
Rightly said Mr. Jaswinder.. I more question i would like to ask.. Why will one take Fixed Deposits of Post Office, if Banks are providing higher rates of interest on the same (arnd 9% on all FDs fr 1 year or above).. Is it like interest given in Post Office FDs is Tax free & in Banks FDs is Taxable??
@Aparna Nema,
Yes interest from PO FDs is tax free and that from banks is taxable. That is one reason.
The advantage with post-office deposits is that it offers a fixed rate of return for the duration of the deposit, while banks constantly review their recurring deposit rates.
got the topic for my next article !
When Government cannot (or do not want to) control the soaring inflation then instead of this meagre rise in rate of returns it should have kept it at least at par with the inflation i.e. at least 9% interest rate in PPF/NSC.
@Sudip D, The beast called inflation has such as unpredictable, random and ever-changing nature that no matter what interest rates are set, government is bound to miss the target and land on either side of the argument.
@Sudip D, Wait for some more time, I will not be surprised if they are forced to contemplate on that as well.
Thanks for the updates. Any information, by when, Kisan Vikas Patra would be discontinued. What will happen to those who have already taken it earlier?
@Aparna Nema, Obviously for those who have taken it earlier, it will be valid and will go till maturity !
Radhey,
Thanks for the information, very helpful.
A good move by Government to raise interest rates on PPF and also increase the limit to Rs 1 lakh. This will benefit a lot of people.
And also they have reduced the tenure on post office MIS from 6 years to 5 years but they should have increased the interest rates to 8.5%. A lot of people(esp. senior citizens) park their money in post office MIS’s
Rakesh
@Rakesh, Yeah POMIS is very famous with the elderly folks. But I am happy with the current scenario.
Sir,
NEW PPF increased limit is applicable from which date or accounting year.
@sunil, Good question. I guess from this fiscal year. Is that not the case ?
Goverment should be increate the post office interest rate the public will invest the more and more money in post office, and the post office will also get devlop, but now a days post office is working like a Muncipal corporation office.