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Returns on small savings in post office and PPF instruments are set to dip in the new financial year. The Finance Ministry will announce before April 1 the new rates for Post office Saving Schemes, National Savings Schemes (NSC) and Public Provident Fund (PPF).
Based on the recommendations of the Shyamala Gopinath panel, the new rates will now be aligned to the rates on government bonds of similar maturities with a spread of 25 basis points (or 0.25 percentage points). But there are two exceptions. The spread on the 10-year NSC and the Senior Citizens Savings Scheme would be 100 basis points.
There had been two hikes in interest rates earlier, one effective December 1, 2011, and the other from April 1, 2012.
However, the existing rates on one- and five-year time deposits and five-year NSC are still less than the 8.75 per cent offered by the State Bank of India on similar maturities. However, the five-year Senior Citizen Small Savings Scheme and the 10-year NSC fetch more than deposits in SBI for similar maturities would.
In 2013-14, the rates of interest will be determined on the basis of annualised yield of 2012 on the benchmark government securities.
According to market sources, the annualised average yield on five-year G-Secs has come down to 8.41 per cent in calendar year 2012 from 8.51 per cent in 2011. Similarly, the annualised average yield on 10-year G-Secs has come down to 8.45 per cent from 8.51 per cent.
The revision is taking place at a time when the Government is expecting net collections of nearly Rs 5,800 crore during the next fiscal under various small savings schemes.
With the new rates to be aligned every year, it is interpreted that rates on small savings will change every year. However, the Finance Ministry has clarified that, barring PPF, the rates on other schemes are fixed and not floating.
This means that the rate prevailing at the time of investment will remain fixed and unchanged till the maturity of the investment. Any revision in interest rates in subsequent years will only be applicable to the investments made from that time.
> Shishir.Sinha@thehindu.co.in
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