Government announced Interest of PPF KVP NSC SCSS and Sukanya Samriddhi Account and also Post Office Savings Schemes for the period of 1st April to 30th June 2016. There is a huge decrease.
In my last post, I mentioned how the interest rate is now calculated for all Post Office Savings Schemes. This is the big move, which no one expected. Because since long we never faced the interest rate risk in fixed instruments or debt products. Now it is the reality that fixed instruments or debt products are also volatile in nature and associated with risks. Please go through my earlier post of how the interest rate is going to be calculated in future.
Few highlights of these changes are as below.
- Post Office Savings Schemes rates change on a quarterly base.
- Sukanya Samriddhi Yojana, Senior Citizen Savings Scheme (SCSS) and the Monthly Income Scheme (MIS) enjoys a higher interest rate than other Post Office Savings Schemes.
- The Effective interest rate on National Savings Certificate (NSC) and Kisan Vikas Patra (KVP) reduced.
- Higher liquidity in Public Provident Fund (PPF).
- 1 yr., 2yr., and 3 yr. term deposits, KVPs and 5 yr Recurring Deposits (RD) fetch lesser returns.
The same is explained in below image.
I highlighted the changes in red colour for your better understanding.
Below are the Interest of PPF KVP NSC SCSS and Sukanya Samriddhi Account and other Post Office Savings Schemes. These rates will be applicable from 1st April to 30th June 2016.
Here, I marked in the red colour of whatever the changes from 1st April 2016. Few points you must notice.
# You notice that earlier the interest rate for Term Deposits of 1 Yr, 2 Yrs and 3 Yrs used to be same. Now it is not the case. Also, instead of 5 Yrs Term Deposit, NSC fetch you more return. Because Interest rate for 5 Yrs Term Deposit is 7.9% while for NSC it is 8.1%. But due to compounding effect, the 5 Yrs Term Deposit will actually fetch you more return than the 5 Yrs NSC.
# Earlier KVP (Kisan Vikas Patra) used to double your money in 100 months or 8 Yrs 4 Months. Now KVP double after 110 months or 9 Yrs 2 Months. So almost a year of gap. It is due to change in compounding frequency from half yearly to yearly. Also, due to the drop in interest rate.
# No change in savings account interest rate. So you still enjoy same 4% interest rate.
# Earlier SCSS (Senior Citizen Savings Scheme) used to fetch you highest interest rate. But now both SCSS and Sukanya Samriddhi Scheme offers same interest rate. Because both these schemes are considered as social schemes.
# After SCSS and Sukanya Samriddhi Scheme, 5 Yrs Term Deposit is the scheme which fetch you highest effective return of 8.13%.
Hence, if your idea is not for tax saving, then instead of NSC you can directly go for 5 Yrs Term Deposit.
Whether to invest or not?
No option…The noise of reducing interest rate will be for time being. After that we have to accustom for these changes. But this gives a real shock to many Indians. Because they never felt volatility in their post office scheme. However, now they will see it on a QUARTERLY basis. I still feel PPF and SCSS are best product to invest.
When we consider the real return (return on investment-inflation rate), I feel these post office saving schemes still offering you positive real returns. Just quoting one Facebook group comment here to make you understand on this.
Hope this will cool down many investors 🙂