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.
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 🙂
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Hello Sir,
Your Articles are really great and thanks for this good help you are doing.
I am 27 yrs old and i am investing Rs.1000 in each of the below mentioned Mutual funds via SIP and planning to continue it for another 10 to 15 years.
Sundram select midcap-Gr - Nov 2015
Reliance small cap fund-Gr - Dec 2015
Franklin India smaller companies fund-Reg-Gr - Nov 2016
DSP BR small cap fund-Reg-Gr - Nov 2016
HDFC MidCap Opp Fund-Gr - Nov 2016
Right now my investment is 100% in Equity and planning to invest 5000 more in ELSS/Debt funds.
My portfolio suggests to invest 30% in Debt and 70% in Equity. could you suggest me some good ELSS and Debt funds. and also suggest me whether i can go for opening a PPF account.
Awaiting for you reply.
Thanks in advance.
Regards,
Sathya
Dear Sathya,
Who suggested these funds to you? Why so many small cap funds? Who suggested you 30:70 ratio?
I have chosen those funds on my own by referring in net. i have read, it has to 30:70 ratio for the mutual funds if the investment is above 10 years. whether i will lose with these funds having in my portfolio and how can i make i correct? could you please suggest?
Dear Sathya,
Keep one thing in mind, no fund will perform BEST forever. You have to be patience.
Thank you for the reply sir.
I invested money in SCSS account in IDBI bank as well in post office and SBI.
I filled 15H forms and hence no TDS is applied in P.O. and SBI for any quater.However IDBI deducts TDS from interest payable on 31 March and reverse it after my request application.Manager of IDBI told me that as interest is paid on 1st working day of April TDS is deducted.
Can you clarify this discrepancy ?
Abhaykumar-Yes, they are right.
please tell the interest calculation for NSC of 5 yrs - is it same 8.70 % (2017 year Rate) for all next 05 years or different for each years as per respective interest rate of that year.
Thanks & regards,
sunil kadam
email- ssskadam@rediffmail.com
Sunil-It will be fixed throughout the period at the rate which is applicable while you investing
Hi Basu,
Hope you will be fine.
Please advise that is there any TDS Deduction in KVP.
Thanks
Aswad-TDS (Tax Deducted at Source) will not apply for Kisan Vikas Patra or KVP.
I have invested one lakh under KVP (post office) , but now i need to cancel with in month, is this possible , the change am planing because of TDS to pay for the intrest. Pls advise what i can do to come out of this KVP.
Narasoji-Do you feel avoiding TDS means avoiding TAX??
Hi Basavaraj, Not exactly, I thought KVP is good for me ( my salary is 40K) to show the tax exemption under 80C and no tax will deduct on the interest i get from this plan after maturity (TDS) but now i got to know there is no tax saving with this KVP, now want to exit from this to look for better plan to invest. (last week only opend this KVP in post office)
Narasoji-You are allowed to withdraw it after 30 months ONLY.
if I withdraw after 30 months will be get the interest on my investment or , Can i transfer this KVP to my brother ?
Narasoji-Yes, you will get interest up to 30 months. No, you can't transfer it to your brother.
Hi Basu,
I have been investing money monthly 1000/- each in below funds.
1) HDFC mid-cap growth --Direct
2) HDFC Balanced fund-Direct
3) ICICI pru chip large cap -Direct
I do not have knowledge in share market, but i would like to start invest in share market/stock exchange.
Please suggest me
Karthik-Without knowing the goals and timeframe, it is hard for me to guide.
Hello Basu,
I opened SSA in SBI, I added account to beneficiary so that I can make online contribution from my savings account , but to my surprise I found receipt which is generated is ppf receipt? From bank I got normal passbook not the pink SSA passbook! Can you please tell is it normal?
Ankit-You have to contact the bank. I am not aware of how they are managing this account.
I confirmed with SBI Bank, they treat SSA transaction as PPF transaction. So online receipt which is generated will be a PPF receipt. But passbook will show it is a SSA account.
Ankit-I think they not yet set up the system to generate SSA receipt.
Hi basu, Finally I feel that I have found a knowledgable, relaible person who can actually help. Please help me with this issue.
I am 26, 1st month in my job, in 30% tax bracket. parents are dependent on me. father doesn't have taxable income(no epf, no ppf, no pension, no savings). they are fully dependent on me.
1. In which scheme I can invest to provide them a steady income every month/quarter?
2. How much Do I have to invest to get 10K/month for them?
3. Is axis income fund(G) and DSP income oppportunity fund (G) good options or MIS/SCSS?
TIA
Saikat-Why you need constant income? If your parents depend on you then whether you invested in one's emergencies like life, health and accidental isnruance?
Hi Basu,
I need your help regarding my father’s investment, he was retired at March 2015 at age 58 but govt. of India & ITI (sick psu) giving his retirement fund by 2nd week of May 2016. His total corpus is 29 lacs (23 lacs as PF & 6 lacs from gratuity).As his age is 59 so he is not eligible Senior Citizen scheme.
I would be grateful please provide investment tips so he could get monthly income.
Some of the concerns & inputs are as follows:
a) As interest are decreases sharply and in future chances are there chances of more cuts, so he doesn’t wants to take risk now he needs safe and monthly income from interest.
b) Monthly expenses he needed atleast 30k per month. (25k for expenses & 5k for saving).
c) Other source income are
1) Getting pension Rs 2400 per month.
2) Getting Rent 5000 per month.
Some of the queries are:
1) Where to invest and what is best option to get the better interest return?
2) Our focus is more for senior citizen scheme available in market as interest rate is higher than and after 6 months he would be in senior citizen category as of now we think to invest in bank FD, Is it is a right decision?
3) Like MIS in post office/banks is Mutual Fund MIP is good to invest and as compared to bank/post office which gives higher return in short term and do this scheme giving monthly interest.
4) Investing in Non-Convertible Debentures (NCD), is this investment give better monthly income. (I don’t know anything about it just heard from someone)
5) Where to invest 5k in MF via SIP or 3k in MF and 2k in banks.
Fund selected: HDFC or Tata Balanced Fund
6) How much money to put for emergency fund 1.5 lacs or more please suggest?
Request you to please provide your input on the above query and which will help us to create a path for next upcoming few years. You had always guide me every time when i needed thanks for support :), as requested in below post of mine the day has come for which i am waiting for so long.
Thanks,
Shalabh
Shalabh-1) Nothing is safe now.
2) Better decision to go for SCSS once he will be eligible.
3) Mutual Fund MIPs comes with bit of equity exposure and monthly income is not fixed.
4) Riskier as company ratings may fall and end up in default risk. Hence, try to avoid such NCD. To extent you can invest in secured NCDs but not unsecured.
5) Without knowing timeframe it is hard for me to guide.
6) Ideally it should be 6-12 months of household expenses. If it is for your father, include additional surplus as health emergencies.
Hi Basu,
Thanks for your input it was really helpful.
For point 2) any other options apart from SCSS.
For point 5 ) time limit is 5 years and looking for balanced fund.
Thank you so much sir.
Thanks,
Shalabh
Shalabh-If your expectation is constant cash flow from investment, then stick to SCSS only. If your timeframe is just 5 years, then stay away from any equity funds.
Thanks Basu :)
Hi Basu,
I request you to kindly share your thought on your blog regarding senior citizen, so they could get better investment return, as in India we had a bigger section of people rely only on interest after their retirement and we know interest rate will fluctuate in the future.
I had seen lots of people in your blog are raising their concerns on senior citizen scheme as they are now worried about the returns after interest rate cut.
I request you please provide us some useful information about them & explore the different options for investment and there risk factor.
Thanks,
Shalabh
Shalabh-I understand your concern and thanks for providing inputs. Definitely I will write a post on this.
Thanks Basu looking forward for your post.