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Wednesday, March 27, 2013

Small savings schemes to fetch you less this year

NEW DELHI: The small savings schemes will fetch a marginally lower return in the next financial year. The government has lowered the rate of return on most of these schemes by ten basis points, or 0.1 percentage points, in line with the lower yield on government bonds last year.

Based on the recommendations of the Shyamala Gopinath Committee, the government had benchmarked the interest rates on small savings to yield on government securities. The public provident fund (PPF) will now fetch 8.7% return against 8.8% last year, the finance ministry said on Monday in a statement.

PPF is one of the few small saving schemes in which the interest earned is tax free, making it one of the most attractive investments. Investment in the scheme is also eligible for tax rebate.

The rates on savings deposit schemes and on fixed deposit of up to one year run by post offices have not been cut. These new rates will be applicable for the entire financial year 2013-14. The new rates are notified at the beginning of the financial year.

Planning Commission deputy chairman Montek Singh Ahluwalia defended the reduction in rates after West Bengal chief minister Mamata Banerjee crticised the cut.

"In real terms, inflation is much lower than it was two years ago. So, in real term, the interest rate is more favourable," Ahluwalia said, adding that rates on small savings could not be delinked from other rates in the country.

He also said that the reduction was necessary for overall lowering of interest rates. "If you want low (interest) rate environment, you cannot say, "I want higher interest rate for savers and low interest rate for borrowers". They have probably moderated (interest rate) a little bit in line with the softening of interest rates," he said.
 Source : The Economic Times, 26 March, 2013

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