Happy April Fools Day to small saving scheme investors!

The Government of India (GoI) on Wednesday slashed interest rates on various small saving schemes by around 0.4 per cent to 1.1 per cent. These rate cuts seemed to be one of the deepest and were about to come into the effect from today and remain in force till June 2021.  

The above image shows that the highest fall in the interest rate was for a one-year time deposit (fall of 1.1 per cent) whereas the public provident fund (PPF) saw a rate cut close to 0.7 per cent. This is definitely quite shocking for the small saving scheme investors. 

However, the GoI has withdrawn this order and has kept the rates unchanged. This was confirmed by Nirmala Sitharaman on Twitter. This seems like the GoI played a prank with the investors of small saving schemes on the occasion of April Fool’s Day! 

It might be a sigh of relief for many investors, especially those who depend on these small saving schemes for regular income. However, in my opinion, it makes more sense for small saving scheme investors to diversify their investments rather than holding them all in small saving schemes. 

In a small saving scheme, though there is no credit risk whatsoever, it does carry reinvestment risk. Therefore, diversifying across other investment avenues such as equity as well as debt mutual funds is a more prudent choice.