Low risk investors may invest in small savings schemes now as the government will possibly reduce the interest rates by 1st July 2021. As a matter of fact on 31st May, the government decidedly lowered the rate of interest on all the schemes aligned with government securities rates but terminated the notification the following day, because of the Assembly elections in many states.
Small savings schemes are prevalent with fixed salaried investors as they offer much higher interest rates compared to bank fixed deposits. According to data from the Reserve Bank of India (RBI) , the share of small savings in household financial savings has grown from 1.3% of GDP in Q3FY20 to 1.4% in Q3FY21.
According to the experts, the government may curtail the interest rates of small savings from July 1 because the interest rates in the economy have fallen. The reduction of the interest rates will be aligned with RBI’s and the government’s policy to increase consumption and stimulate the economy as gross domestic product was reduced to 7.3% in FY21.
Investors can invest at a higher rate of interest in 1, 2, 3 and 5-year post office term deposits, NSC, KVP, 5-year period recurring deposits, MIS and SCSS for the entire period of the investment. As interest rates will get revised, these schemes will pay the reduced rates till maturity. Moreover, in the case of PPF or SSY, the whole balance will earn the revised interest rates.
Schemes like NSC, KVP and MIS are popular ladder investments which can be used for many financial goals. You can also purchase NSC from public sector banks and a few private sector banks and guarantee the certificates as collateral for loans from banks or non-banking financial institutions
In KVP the lower limit deposit is Rs 1,000 and in multiples of Rs 100 moreover, there is no higher limit for investment. The maturity period is recommended by the ministry of finance as applicable on the date of deposit.
PPF remains most popular
PPF remains the most popular investment option to get rid of taxes . The duration of the account is for 15 years which can be extended for a period of 5 years. A subscriber is allowed to make one withdrawal during a financial year after five years . The sum of withdrawal can be taken up to 50% of the total amount .
The untimely ending is allowed after five years from the end of the year in which the account was opened subject to certain conditions. At the time of untimely ending 1% interest is to be deducted from the date of account opening or the date of extension as the case may be.
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