small savings. Small-saving schemes to remain attractive despite falling rates

Small-saving schemes, especially the Public Provident Fund, have been a perennial favourite with retail investors and trends indicate that they will continue to see robust investments despite concerns of falling interest rates.

Hence, Finance Minister Nirmala Sitharaman’s decision to maintain status quo on the interest rate on these instruments for the April-June quarter has been widely welcomed.

Analysts and experts said that even if the rates had been cut, it is unlikely that investments in small savings, especially PPF, would have been impacted given their tax advantage and interest rate differential compared to fixed deposits. The post-tax returns on these instruments would have been higher than CPI rate, even after the rate cut.

Also, schemes like the National Savings Certificate, Kisan Vikas Patra and Sukanya Samriddhi Scheme, generate much investor interest since interest rates are often locked for the entire tenure.

“PPF continues to be a very good instrument for debt allocation. Salaried people have the option to choose between PPF and Employees Provident Fund. But for the self-employed, the PPF is a very good option,” said Harshad Chetanwala, Co-Founder, MyWealthGrowth.com, adding that it is possible that the interest rates on these instruments will go down along with savings accounts and fixed deposit rates in the coming quarters.

Data with the National Savings Institute show that by January 2021, gross small savings collections had touched ₹7.07-lakh crore. It is likely to cross ₹8.46-lakh crore that was mopped up in 2019-20.

Large share

A large share of the investments until 2017-18 came from States like West Bengal, Maharashtra and Uttar Pradesh.

Budget documents also indicate that the government expects a steady rise in the National Small Savings Fund. The outstanding NSSF corpus is expected to be at ₹20.9-lakh crore in 2021-22, against ₹17.8- lakh crore in the last fiscal.

Collections from savings deposits and certificates and PPF are expected to expand by six per cent year-on-year, while disbursals are likely to grow four per cent, JM Finanical said in a report.

The RBI had said last year that the share of small savings in total resources mobilised by banks, small savings and mutual funds increased sharply from 2.5 per cent in 2012-13 to 12.1 per cent in 2018-19.

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