Small Savings Schemes interest: PPF, NSC offering 7.9 pct rate! No risk in times of Coronavirus

Small Savings Schemes interest: Public Provident Fund (PPF) is one of the most attractive retirement-oriented investment tools. On 31 December, 2019 the government fixed the interest rate on PPF for 2020 January-March at 7.9%. In times when Coronavirus fears has caused stock markets to plunge, these small saving schemes are acting like a knight in shining armour for investors. Yes, there is no risk involved in these investments and the investors will exactly those interest rates that are promised. No fear!

Small Savings Schemes: A PPF account holder can invest from Rs 500 to Rs 1.5 lakh in PPF and a maximum number of investments that he or she can do is 12. The monthly interest in a PPF account is calculated on the minimum balance left in the account between 5th to the last day of the month. So, to maximise PPF gains, investors need to invest before the 5th of the month.

Experts advice that if an investor decides to invest a lump sum amount in his or her PPF account, he or she should try investing it on or before the 4th of the month to get maximum interest benefits.

Another important small savings scheme is the National Savings Certificate or NSC. It is currently offering an interest rate of 7.9%, the same as that of PPF. Apart from guaranteed returns, NSC, which has a maturity of five years, also offers benefit of income tax deduction on investment.

Investors should know that there are some unconfirmed reports that suggest interest rates on these two schemes may come down going forward, but officially there is no word on this. Government has not reduced interest rates on small saving schemes even though many banks including the State Bank of India (SBI) have reduced interest rates on Fixed Deposits (FD) schemes of different tenors during this quarter.

There has been a long standing complaint of the banks that due to high interest rates being offered by the government on small saving schemes, they (banks) have not been able to reduce rates on different deposit schemes. Currently, there is a difference of 1% between fixed deposit schemes with one year maturity period and small saving schemes.The interest rates on small saving schemes is decided on a quarterly basis.

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The Coronavirus epidemic is having a huge impact on the global economy including India. Even the Reserve Bank of India, this week hinted at considering all options including interest rate cut to deal with the ongoing crisis. Any decision on this will be taken during the Monetary Policy Committee (MPC) meeting.