In the time of volatile stock markets and high inflation, deposits into the public provident funds and other small saving schemes have once again begun to register a rise.
In fact between April and December 2013, deposits into the public provident fund grew to Rs 1,391.43 crore as against Rs 1,169.12 crore a year ago, according to data released by the Controller General of Accounts.
More importantly, contributions to saving deposits and certificates too have witnessed a revival after a steady erosion over the past few years. CGA data revealed that these contributions to these schemes jumped up to Rs 1,732.88 crore in the first three quarters of this fiscal, compared to net withdrawals of Rs 460 crore a year ago.
The finance ministry is also hopeful that the full year target for Rs 7,820.02 crore from PPF contributions is also likely to be met. “There has been a resurgence in small saving schemes such as the PPF over the last few due to high inflation that has made fixed deposits relatively unattractive,” pointed out a senior government official.
The returns on these instruments, which were once seen by investors as their greatest drawback, is now being considered by investors as safe and stead, the official argued.
While the vastly popular PPF offers an interest rate of 8.7 per cent, the 10-year National Savings Certificate has a return of 8.8 per cent and even plain vanilla products like the one year time deposit offer a return of 8.2 per cent this fiscal. Along with this, the schemes also have hefty tax benefits.
Part of this change in investor sentiment are the lack of investment opportunities. While equity markets can be volatile and bearish, high inflation levels have eaten into returns on fixed deposits.
But the bigger draw for small saving schemes has been the finance ministry’s recent move to benchmark the interest rate to those of government securities of a similar maturity along with a mark up of 25 basis points.
The move followed the recommendation of the former RBI deputy governor Shyamala Gopinath committee that was set up to review the structure of the National Small Savings Fund. Based on its report in November 2011, the finance ministry now revises the rates of small savings schemes and notifies them on April 1, every year.
The committee also suggested winding up of the Kisan Vikas Patrika and hiking the annual investment limit for the popular Public