Clarification on Interest Rates on Small Savings Schemes

Ministry of Finance has clarified that although the rate of interest on small savings schemes will be aligned every year with rates of Government securities of similar maturity, with suitable spread, the rates are fixed and not floating so far as individual investments except PPF are concerned. This is in response to news items appearing in certain sections of the Press that the interest rates on small saving schemes, revised by the Government w.e.f. 1.12.2011, are floating rates, which will undergo change according to fluctuations in the yield on the Government securities. 

It has been clarified that the rate prevailing at the time of investments will remain fixed and unchanged till the maturity of the investment. Any revisions in interest rates in subsequent years will only be applicable to the investments made in the relevant period. For instance, investment made in an instrument other than PPF on 1.12.2011 will remain valid till the maturity of that instrument, irrespective of revision of interest rate with effect from 1.4.2012. As regards PPF, the interest rate fixed every year will be applicable to all PPF accounts. 

Source : PIB dtd 04/01/2012

PPF an attractive option for all categories of Investors

For small investors, the Public Provident Fund (PPF) is one of the most trusted investment avenues. It is a 'must have' in the investment portfolio. The recent enhancement of limit and increase in interest rates has made this instrument even more attractive. The PPF offers safety, good returns, and tax savings . The interest earned on these deposits is tax free.

In the present volatile situation, where many stocks and funds are yielding negative returns, it is better to invest your hard earned money in safer bets such as the PPF. Due to the recent increase in interest rates on small savings schemes, the biggest beneficiaries are PPF investors. The interest rate is being increased from eight to 8.6 percent.

Moreover, the investment limit is being increased from the present Rs 70,000 to Rs 1 lakh. For investors who do not want to take risks or dabble in the stock markets, the PPF is the best option. Although the PPF is a preferred option of conservative investors, in the present-day market scenario, even aggressive investors may like to opt for this avenue.

The interest rate will be announced in the beginning of every financial year. The tenure of a PPF account is 15 years. After the initial 15 years, you can keep extending the deposit for five years at a time. In case a person starts contributing Rs 1 lakh every year, he can build a tax-free corpus of about Rs 31 lakhs over 15 years, if the interest rate remains 8.6 percent.

Even considering a marginal decrease or increase in the interest rate (of say between 8-9 percent range) the corpus may vary between Rs 29 lakhs and Rs 32 lakhs. With the enhanced investment limit from Rs 70,000 to Rs 1 lakh, you can earn an additional tax-free interest of Rs 2,580. On an investment of Rs 1 lakh, you can get a tax deduction of Rs 30,000 (if you are in the 30 percent tax bracket). The interest earned will be 8.6 percent on Rs 1 lakh, i.e. Rs 8,600.

So, considering the tax benefit under Section 80C, the effective interest return translates to almost 12.29 percent, and fully secured. PPF is a voluntary contribution by an individual. On maturity, the proceeds received are tax-free . Being a statutory scheme of the central government, it is fully secured. The interest is compounded annually. The deposit can be in a lump sum or in convenient instalments , but not more than 12 instalments in a year.

An account in which no deposits are made is treated as a discontinued account. A discontinued account can be activated by paying the minimum deposit along with a default fee for each defaulted year. A PPF account can be opened by an individual or a minor through a guardian. Those who are contributing to the GPF Fund or EDF account can also open a PPF account. No age is prescribed for opening a PPF account.

There is a facility of withdrawal in the seventh year of the account, subject to a limit of 50 percent of the amount at credit, in the preceding three years. Thereafter, one withdrawal in every year is permissible . Premature closure of a PPF account is not permissible except in case of death.

Source: ET

courtesy : centralgovernmentemployeesportal.blogspot.com

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Modification in PPF Scheme

Ministry of Finance

Modification in PPF Scheme : Deposit Limit Raised from Rs. 70,000 to Rs. One Lac while Rate of Interest on Advances Against Deposits in PPF Scheme Raised from 1% to 2 Percentage Points

The Committee on Comprehensive Review of National Small Savings Fund (NSSF) headed by Deputy Governor, RBI has recommended revision of certain provisions of PPF Scheme, 1968 and benchmarking of interest rates on various small savings schemes with the secondary market yields on Central Government securities of comparable maturities with suitable spread.

The Committee has recommended increasing the deposit limit under PPF Scheme from existing Rs. 70,000 to Rs. 1 lakh per annum and fixing of rate of interest on advances against deposits in PPF scheme at 2 percentage points as against the prevailing interest rate on such advances at 1%.

The Committee has further recommended benchmarking interest rate on small saving schemes to interest rate on Government securities of similar maturities with a positive spread of 25 basis points on all schemes except for 50 basis points for 10 year NSC and 100 basis point for Senior citizens Savings Scheme. Recommendations of the Committee have been referred to State Governments and concerned Ministries/ Departments of Central Government for their comments.

This information was given by the Minister of State for Finance Shri Namo Narain Meena in a written reply to a question raised in Rajya Sabha today. 

Source: PIB

Central and State Governments take various Measures to Popularize Small Saving Schemes

Central and State Governments take various measures from time to time to promote and popularize small saving schemes through print and electronic media as well as holding seminars, meetings and providing training to the various agencies involved in mobilising deposits under these schemes. 

A website of the National Savings Institute under Government on India, Ministry of Finance has also been launched to facilitate interface with the public through wider investors grievances. The website address is nsiindia.gov.in. 

The Committee on National Small Savings Fund has observed that 4% commission under Mahila Pradhan Kshetriya Bachat Yojna (MPKBY) is very high and is affecting the viability of National Small Savings Fund (NSSF). The committee has recognized that the Recurring Deposit Scheme requires considerable effort on part of agents in mobilising monthly deposits. However, 4% commission is distortionary and expensive. The Committee has recommended that it should be brought down to 1% in a phased manner in a period of three years with a 1% reduction every year.

Recommendations of the committee have been referred to State Governments and concerned Ministries/Departments of Central Government for their comments. 

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to an Unstarred Question in Lok Sabha today. 

DSM/ SS/PM
(Release ID :75479)


Source :  http://www.pib.nic.in/ ,September 2, 2011