Skip to main content

PPF rates dip, and will slide further

LAST WEEK, the interest rate on Public Provident Fund (PPF), and a number of other deposit schemes run by the government (Kisan Vikas Patra, the girl child scheme, senior citizens deposit etc) were cut by 0.1% per annum. PPF went down from 8.1 to 8.0%.

 There were some protesting noises on social media and from some of the usual suspects, but they were mostly just murmurs, probably because of the marginal quantum of the cuts.

In fact, a lot of people wondered what was the point of such a small cut. This shows that the idea that these rates are now market-linked is not widely known. They are reset every quarter, depending on the interest yield on government securities. Give how things are going, it wonā€™t be too surprising if these rates fall further. PPF rates are already at a historic low and if they go below 8% then the psychological impact of hearing 7-point-something will be huge on savers. The KVP is already down to 7.7%.

Itā€™s also worth noting that thereā€™s a maths trick to this 0.1%. Your income from PPF is actually down by 1.2%.

The point that savers have to realise sooner rather than later is that PPF and these other schemes are now poor vehicles for long-term savings. PPF specially is widely used as a tax saving and retirement vehicle. However, it does not even maintain the value of your money after taking real inflation into account. While the official inflation rate may be less than the PPF rate, the inflation rate in your own life, especially that of the old and retired, tends to be higher. Expenses such as medical services hardly stick to the orderly single-digit world of the Consumer Price Index.

This sounds like heresy to the conventional way of thinking about savings in our country, but abandoning PPF and using equity-based tax-saving and retirement solutions like ELSS and NPS is increasingly unavoidable.

THE HINDUSTAN TIMES,
NEW DELHI, 3RD OCTOBER, 2016
 

Comments

Popular posts from this blog

GST collection for November rises by 8.5% to Rs.1.82 trillion

  New Delhi: Driven by festive demand, the Goods and Services Tax (GST) collections for the Union and state governments climbed to Rs.1.82 trillion in November, marking an 8.5% year-on-year growth, according to official data released on Sunday. Sequentially, however, the latest collection figures are lower than the Rs.1.87 trillion reported in October, which was the second highest reported so far since the new indirect tax regime was introduced in 2017. The highest-ever GST collection of Rs.2.1 trillion was reported in April. The consumption tax figures highlight the positive impact of the recent festive season on goods purchases, providing a much-needed boost the industry had been anticipating. The uptick in GST collections driven by festive demand had been anticipated by policymakers, who remain optimistic about sustained growth in rural consumption and an improvement in urban demand. The Ministry of Finance, in its latest monthly economic review released last week, stated that I...

Budget: Startup sector gets new Fund of Funds, FM to allocate Rs 10K cr

  The Indian startup sector received a boost with Finance Minister Nirmala Sitharaman announcing the establishment of a new fund of funds (FoF) in the Budget 2025. The minister unveiled a fresh FoF with an expanded scope, allocating Rs 10,000 crore. The initial fund of funds announced by the government with an investment of Rs 10,000 crore successfully catalysed commitments worth Rs 91,000 crore, the minister said.   ā€œThe renewal of the Rs 10,000 crore commitment to the Fund of Funds for alternative investment funds (AIFs) is a significant step forward for the Indian startup and investment ecosystem. The initial Rs 10,000 crore commitment catalysed Rs 91,000 crore in investments, and I fully expect this fresh infusion to attract an additional Rs 1 lakh to Rs 1.5 lakh crore in capital,ā€ said Anirudh Damani, managing partner, Artha Venture Funds.   Damani further added that this initiative will provide much-needed growth capital to early-stage startups, further strengthenin...