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While the public provident fund seems to be an evergreen product, savings deposits and certificates as well as the two new small savings schemes — the revamped Kisan Vikas Patra and the Sukanya Samriddhi Account — are attracting small investors.
Latest government data indicate that deposits in Kisan Vikas Patra (KVP) touched ₹17,000 crore by December 2015. Nearly 80 lakh accounts have also been opened in the Sukanya Samriddhi Account (SSA) that is aimed at promoting savings for the girl child. Total deposits in the scheme touched ₹3,400 crore in the period.
“Initial trends indicate that small savings products are doing well this fiscal. Savings deposits, PPF and the new schemes of KVP and SSA are amongst the most popular,” a senior government official told BusinessLine .
Gross deposits in KVP, which had a slow start when re-launched in November 2014, amounted to ₹2,670 crore in 2014-15.
Officials expect higher deposits in small savings this fiscal, given the better returns offered by the products along with tax benefits and the increased tax deduction limit under Section 80C of ₹1,50,000 annually.
In 2014-15, net deposits in small savings were ₹40,080.15 crore, according to government data. Indicating this upward swing, collections under savings deposits and certificates jumped up to ₹22,364.73 crore by November 30, 2015, exceeding its Budget target of ₹13,025.17 crore for the fiscal, as per data with the Controller General of Accounts. It was a negative of ₹127.78 crore in the same period last fiscal.
Similarly, deposits into the PPF grew 19 per cent to ₹12,446.15 crore by November 30, 2015.
Stable investment option While the Finance Ministry is planning to trim the interest rate on small savings and align them with market rates, analysts point out that they are one of the first investment options for retail investors as they provide stable and high returns along with tax deductions.
Further, volatile stock markets and low interest rate on fixed deposits along with the tax on interest income make them less attractive.
“Small savings have always been popular and provide safe returns. In the last one-and-a-half to two years, they have gained traction due to a heightened awareness of savings. Further, on a short-term basis, they also give a marginally higher return than term deposits,” said Dhirendra Kumar, Chief Executive Officer, Value Research.
Kuldip Kumar, Executive Director, PwC, said, “The uncertain economic environment and declining bank deposit rates could be the possible reasons for such a steep rise in investments in small savings rate.” For 2015-16, the Finance Ministry has set an interest rate of 9.3 per cent for the five-year Senior Citizen Saving Scheme, 8.8 per cent for the 10-year National Saving Certificate, 9.2 per cent for the SSA and 8.7 per cent for the PPF and KVP.
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