Small Savings Schemes Interest Rate Cut on PPF,Post Office, KVP,NSC, Sukanya Samridhi, Senior Citizen Saving Schemes etc with effective from 01st April 2016. Government has said that the rates on small savings schemes have been reduced to align them to market rates.
Finance Ministry already had announced that the review on interest rates on such schemes are now reviewed on quarterly basis, the new rates will be applicable from April 1 to June 30.
Interest rates on Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC) and Senior Citizen Savings Scheme (SCSS) among others have been reduced considerable up to maximum extent. This is mainly done to force bank to reduce their deposit rates.
Compare : Small Saving Schemes Interest Rates
What is Small Saving Schemes ?
Small savings schemes are basically group of investment option which are widely accepted through out the country from post offices to Banks. These schemes are specifically designed keeping the basics of public investment. A large investment are collected through these small saving instruments collectively valued approx ten lacs crores.Interest rate on these schemes are primarily controlled by Government of India. Interest rate on these schemes are linked to market related to investment in Government Securities or G-Secs.
Some of the Major Small Saving Schemes instrument are :
Public Provident Fund or PPF : Read Who Can Open PPF Accounts ?
Monthly Income Scheme
Senior Citizen Savings Scheme
KVP (Kisan Vikas Patra)
NSC (National Savings Certificate)
Recurring Deposits
How these Small Saving Instrument are linked to G-Securities ?
G securities are basically the investment in Government securities like Bonds, Stocks or Bond held in Bond Ledger Account.These securities may be traded in the market as Treasury Bills or Dated Government Securities. Government Securities are mostly interest bearing securities issued by RBI on behalf of the Government of India. Government uses these funds to meet its expenditure commitments. The time frame of investment in G securities are between 2-30 years with coupon bearing interest rate.
What is Basis Point ?
Interest rate are basically reduced or increased in basis point. It is nothing but the difference between the bidding price of securities. For an example the difference between the yield on various maturing bond and calculated as spread and known as basis point or bps. One percentage point is equal to 100 bps.
Example :
Government bond yielding 5%
Treasury Bond Yielding 8%
Spread = 8-5=3%
Basis Point = 3*100bps = 300 Basis Point
What is Market linked effect on Small saving schemes Interest Rate ?
Earlier to Year 2011 the return on Small Saving Schemes were fixed. In very same year the interest rate on these small saving schemes are market linked on recommendation of Gopinath committee.
Example :
Suppose the interest rate onPublic Provident fund (PPF) marked up for 25 Basis point over and above the Government Bond rate or G-Secs rate. If G-sec rate are 8% then the interest rate on PPF for that particular year will be 0.25% above the G-Secs rate i.e. 8.25%.
Details of Quarter the Interest Rate will be changed
Government has announced that the Interest rate on these small saving schemes will be changed every quarter. Based on the information the various quarter and date the changes will be announced are
| S.N | Effective Interest Rate Quarter | Notification Date | FIMMDA month end G-Sec. rate effective |
| 1. | April to June | 15th March | Dec.-Jan.-Feb. |
| 2. | July to September | 15th June | Mar.-Apr.-May. |
| 3. | October to December | 15th September | Jun.-Jul.-Aug. |
| 4. | January to March | 15th December | Sep.-Oct.-Nov |
Compare : Small Saving Schemes Interest Rates
Public Provident Fund (PPF) – Rate Cut from 8.7% to 8.1%
Sukanya Samriddhi Yojana (SSY) – Rate Cut from 9.2% to 8.6%
Senior Citizens Savings Scheme (SCSS) – Rate Cut from 9.3% to 8.6%
Post Office Monthly Income Scheme (POMIS) – Rate Cut from 8.4% to 7.8%
National Savings Certificates (NSCs) – Rate Cut from 8.5% to 8.1%
Kisan Vikas Patra (KVP) – Tenure Raised from 100 Months to 110 Months Interest rate reduce from 8.7% to 7.8%