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The interest rate on small savings schemes like the popular Public Provident Fund (PPF) has been kept unchanged for the September quarter, in some disappointment for savers. Many analysts had expected the government to hike small savings rates marginally, given the rise in bond yields. The interest rate on PPF, for example, has been kept unchanged since January at 7.6%. “The rates of interest on various small savings schemes for the second quarter of the financial year 2018-19 starting 1st July, 2018, and ending on 30th September, 2018 shall remain unchanged from those notified for the first quarter of financial year 2018-19,” the Ministry of Finance said in a statement.
Interest rates on small savings schemes like post office deposits, PPF, National Savings Certificate (NSC), Kisan Vikas Patra (KVP) and Senior Citizens Savings Scheme are linked to government bond yields of similar maturities. A small mark-up is added to the average government bond yield of the previous quarter. Interest rates for small savings schemes are being notified on a quarterly basis since 1 April, 2016.
However, this formula for fixing small savings rates, as recommended by Shyamala Gopinath committee, has however not been strictly followed in some quarters, say analysts. Bond yields have been rising since last year on concerns over rising oil prices, fiscal deficit and inflation outlook. Last month, the 10-year bond yield rose above 8% for the first time since May 2015.
The Reserve Bank of India (RBI) recently raised its repo rate by 25 basis points to 6.25%, its first hike in over four years, amid inflation concerns. One basis point is one-hundredth of a percentage point.Even before the central bank hiked interest rates, many banks revised their deposit rates higher.
Financial planners say even if the interest rate on PPF has not gone up, it still remains a good investment option for conservative investors. The 7.6% interest rate is reasonably a good rate considering the fact that the interest is tax free, says K. Ramalingam, the chief financial planner at Holistic Investment Planners.
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