Savings scheme

Should you invest in a small savings plan?

Personal finance

oi-Roshni Agarwal


A sharp sharp drop in interest rates announced for the new quarter starting in April on the Post’s savings plan, then an overnight withdrawal has left many wondering how long the rates that are currently at. the hike given the low interest rate regime could prevail. . And now in the context of it we tell you that you need to lock in the high rates currently offered on the various savings plans.

Should you invest in a small savings plan?

Lower rates on small savings plans can be reconsidered in the next quarter or maybe later

There have been press reports suggesting that the recent rate cut reversal is more of a political issue, and that around 1/4 of deposits come from states in the process of election. Apart from this, personal finance experts also believe that there is a mechanism to bring the interest rate of small savings plans in line with the market rate. And mainly the interest rate on small savings plans is decided on the basis of the yield of government securities (G securities) of the same maturity during the previous year, plus a spread of 25 basis points. expected beyond. 1 basis point is one hundredth of a percentage point.

And as the economy’s overall interest rate falls, the government will be forced to lower the small savings plan rate too sooner or later.

Should we invest in small savings given a possible future fall in rates?

Any investments you want to make now in a small savings plan should be based on larger aspects being
1. Long-term financial goals
2. Your global asset allocation in debt and equities in order to have a balanced portfolio that is not too risky and at the same time allows you to overcome the demon of inflation. Other debt instruments can also be considered for any spread such as EPF etc.
3. Tax aspect
4. Liquidity
5. Eligibility criteria such as Sukanya Samriddhi or Senior Citizens Savings Scheme for that matter
6. Maximum annual investment limit in an instrument

Now we are discussing individual diets here:

1. Seniors Savings Plan (SCSS):

Specially designed for seniors, the program currently offers an attractive yield of 7.4% which can be locked in for 5 years. In addition, for the investment or contribution made to the scheme, the elderly benefit from a discount of 80C. In addition, interest is payable quarterly, so it is a good investment avenue for those looking for a regular source of income. In terms of investment, the maximum cap is Rs. 15 lakh and a couple can put a maximum of Rs. 30 lakh. Note that interest income is taxable.


This instrument, which is primarily intended to provide for a girl’s financial needs at the time of education or for marriage, yields 7.6 percent which is tax-free. Here too there is an investment cap similar to the PPF of Rs. 1.5 lakh per year and this is allowed for a maximum of 2 daughters of a couple.

Here this instrument is also long term with restrictions on the withdrawal such that the first withdrawal is only allowed when the child has completed his tenth year or reaches the age of 18. And the final redemption can be made at the end of 21 years from the date of opening the account. Nevertheless, the margin of maneuver is granted in the event of marriage, that is to say in the event of a previous marriage, the amount of the instrument can be withdrawn early.

Likewise, PPF is now gaining in attractiveness amid the new rules launched for EPF. Nevertheless even in the event that the rates on the PPF are revised downwards, it remains a good investment due to its EEA tax advantage.

So, given your overall debt allowance and if it still needs to be paid, you can lock in at the current higher rates and invest in a small savings plan. But remember, you absolutely need to have a larger long-term equity portfolio to beat inflation.

Article first published: Saturday April 3rd, 2021, 13:04 [IST]

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