Small savings schemes look promising, what should you do now?

Finally, after a wait of almost three years, the Government of India has raised interest rates on small saving schemes. Various schemes that fall under this category are saving deposits of different tenure, senior citizen saving schemes, the public provident fund (PPF) etc. One of the reasons for such a hike was the general increase in the interest rate in the country. The central bank, RBI had raised repo rate in the month of August, followed by a hike in the month of June. After this, it became imperative for GOI to increase interest rates on small saving schemes. The interest rate was increased by 40 basis points on most of the instruments, however, there are instruments where the rise in interest rate is 30 basis points. This will have a ripple effect. Now the banks and other institutes will be compelled to increase their deposit rates. 


 
What it means for investors
This hike is definitely a welcome move for the risk aversive investor who relies and invest on the fixed income securities. For example, a risk-averse senior citizen dependent on interest income and who has invested in Senior Citizens Savings Scheme (SCSS) is going to benefit as interest has been hiked to 8.7 per cent from 8.3 per cent offered for the quarter ended September 2018. This is beneficial for investors who do not fall in the tax bracket. In general, this is good for investors and savers who have taxable income of below Rs. 5 lakh. For others, they may consider PPF at 8 per cent (earlier 7.6%), which translates to 10.4 per cent for purposes of comparison with taxable products.
However, we believe that if you are a long-term investor and willing to take a moderate risk, you should stick to mutual fund products that come with various options and can give you better returns than these products in the long term.