Interest rate cuts for PPF, NSC – Impact on investors!

By BankBazaar | March 27, 2013

Returns on investment options like PPF and NSC lowered, by interest rate cutting of 0.1%

 

The government of India, amidst an environment of change and reform, has given the consumer another jolt, with the reduction of the interest rates for popular investment options and schemes. The interest rate for Public Provident Funds (PPF) and National Savings Certificate (NSC), have been reduced by 0.1% with effect from the start of the new financial year. The move doesn’t come as a surprise, as the government has been looking to cut cost overheads, and bring the economy back on track. What is surprising though is the category targeted by the financial policy makers, as PPFs and NSCs have proven to be great revenue earners for the Indian economy.

The interest rate for Public Provident Fund now stands depreciated at 8.7% from the previous figure of 8.8%, and that for the National Saving Certificate (five-year plan) stands at 8.5%. The ten-year NSC faced the same fate, as the interest rate came down to 8.8%. On the contrary, the government has left crucial interest rates, such as the savings deposit rate which stands at 4%, and the one-year time deposit rate standing at 8.2% unchanged, which is a major relief for the investor.

The unique targeting of these popular investment options is bound to save the government a lot of money, and since the cut isn’t the biggest, the consumers are not expected to back away from exploring the option, which still remains extremely secure and profitable. The profitability of the investment options is still not an issue, because the interest continues to be tax free, and the security levels uncompromised. The move has triggered a debate yet again, and although meagerly, but does contribute to the gloominess of the already lugubrious economic environment. The government continues to tread carefully, due to the volatile political and economic situation, and the move although somewhat unwarranted, will give it some head space to operate in, thus partially justifying its implementation.

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