PPF or public provident fund deposits will fetch 7.9 per cent interest
rate for the April-June quarter – the lowest interest rate in nearly 40
years.
The Finance Ministry on March 31 lowered interest rate from 8 per cent
to 7.9 per cent on PPF deposits in its latest quarterly revision.
Interest rate on PPF as well as other small savings schemes has been
going down steadily in line with a broad decline in overall interest
rate in the financial system.
Since April last year, interest rates of all small saving schemes,
including PPF, have been recalibrated on a quarterly basis. Earlier,
they used to be revised annually. The interest rates are linked to
yields on government bonds. Interest on small savings schemes, including
PPF, enjoy a small mark-up over yields of bonds of comparable duration.
Now the important question is, whether PPF interest rates will be
revised further lower?
Experts don’t rule out a further cut. “PPF rates will see a slow
decrease till the time the inflation remains in the RBI target band of
4-5 per cent. Further cuts in the PPF rates cannot be ruled out even
though the RBI stance has turned from accommodative to neutral. However,
the cuts in the PPF rates will be minor given the political
implications they may have,” said Manoj Nagpal, CEO of Outlook Asia
Capital
Besides macro-economic factors like inflation and overseas flows into
bonds, yields also take cue from RBI’s policy stance. Bond yields have
hardened since RBI in February announced a change in its policy stance
to neutral though strong overseas flows have kept yields in a range.
Is PPF Really Worth It?
Yes, say some financial planners. “PPF continues to offer positive real
returns. In comparison, bank fixed deposits offer around 7 per cent.
Considering a post-tax interest rate of around 5-7 per cent, depending
on one’s tax slab, for people in higher tax slab clearly this will only
help them match inflation, Mr Nagpal added. “Bank fixed deposit will at
best be a value protector.”
PPF comes under the exempt-exempt-exempt (EEE) tax regime, meaning
interest earned as well as the withdrawals from the PPF is tax-free.
Profit : Proftndtv
