Govt cuts interest rate on PPF to 8.1% from 8.7%
Sharp cuts in interest rates on other savings schemes too
NEW DELHI: The government announced on Friday sharp cuts in interest earned on a range of state-run savings schemes including the popular public provident fund, the Kisan Vikas Patra and senior-citizen deposits.
Lower ear nings on these schemes could force millions of households to shuffle their savings portfolios. Middle-class Indians rely on small investment options offered at post offices for social security and parking surplus cash.
Total outstanding deposits in such schemes stand at over Rs9 lakh crore. Indians have been parking more than Rs50,000 crore annually as additional savings in these instruments over the last three years. The government depends on this pool of money, also called the National Small Savings Fund, to finance part of its budget.
Economic affairs secretary Shaktikanta Das described the decision to cut interest rates as a “normal exercise of resetting” rates in March every year. The move will enable banks to reduce lending rates.
The rate of interest on the PPF ( Public Provident Fund) scheme has been cut to 8.1% for investments made during April 1-June 30, 2016 from 8.7% currently.
Investments in the Kisan Vikas Patra will earn a return of 7.8% from 8.7% at present, while senior- citizens savings scheme deposits of five years would earn 8.6% interest compared with 9.3% currently.
The senior- citizens savings scheme will fetch 8.6% per annum compared to 9.3% currently, which could upset financial plans of pensioners and individuals who are nearing retirement age.
Likewise, the Sukanya Samridhi Yojana will give a return of 8.6% from 9.2% at present. The scheme launched last year was specifically designed to encourage parents to set aside money for girl children to fund their education and other future needs. The government last month announced a decision to move to a new system for interest rates on state-administered schemes, making these marketlinked. Market rates move in tandem with government bond rates that are currently on a downward trend.
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