Financial planners say small savings schemes are always a safer bet than any other instrument because of the inherent sovereign guarantee.
New Delhi: For the current April-June quarter of FY22, interest rate cut on small savings schemes, which was announced on March 31, was reversed on the next day. Nirmala Sitharaman had said that interest rates for all saving schemes — which existed in the last quarter – would continue.
However, experts are of the opinion that interest rates on small savings schemes are likely to be cut from July 1, 2021 as banks and the Reserve Bank of India are in favour of a cut in interest rates of small savings schemes. Due to higher rates on small savings schemes, the central bank is struggling to lower borrowing cost in the broader economy. So it is quite likely that interest rates on small savings schemes will be cut from the next quarter.
So, should one continue to lock in prevailing high rates in small savings schemes or shift to other avenues like mutual funds?
Financial planners say small savings schemes are always a safer bet than any other instrument because of the inherent sovereign guarantee. So for risk-averse investors, there is no good option than small savings schemes.
“Small savings schemes, which provide government guarantee and various tax benefits, have been the first preference of investors for their fixed income portfolio,” said Balwant Jain, Tax and Investment expert.
After the failure of some co-operative banks, that typically provide higher interest on fixed deposits, savers have become risk-averse and prefer to invest in instruments where their capital will remain protected.
Among the available small savings schemes, PPF has been the most favourite instrument for Indians for saving money for long-term goals because of the compounding benefit it provides and the EEE (exempt-exempt-exempt) status. PPF provides exemption from tax at all three stages —at the time of making the investment, when interest is earned and on maturity.
Similarly, SCSS is designed to provide senior citizens a regular income at higher interest after their retirement. “Although one can invest maximum up to Rs 15 lakh in SCSS, he should avail the benefit of this scheme first before investing in any other annuity product,” said Mr Jain.