At a time when the stock market is witnessing volatility due to global uncertainty, investors are looking for options that are safe and guarantee them returns. For such investors, fixed deposits, public provident fund, and national savings scheme are some of the avenues. Here’s what are these instruments:
What Is Public Provident Fund?
The Public Provident Fund (PPF) is a government-backed small savings scheme. It was launched by the Indian government years ago to benefit small savers, who do not have a risk-taking appetite. The scheme provides an option to the public to save taxes with its exempt-exempt-exempt (EEE) feature, which indicates that it is totally a tax-free savings option.
Currently, PPF offers an interest rate of 7.1 per cent per annum and investors can put in their money into their PPF account for 15 years in a row.
What Are Fixed Deposits?
Fixed deposits are the most popular saving instruments. People invest in this instrument to get an assured return on their investment. However, most FDs currently are giving returns that are less than inflation rate.
For instance, IDFC First Bank is currently offering FD interest rates in the range of 3.50-6.00 per cent. India’s largest private sector lender HDFC Bank offers 2.50-6.00 per cent interest rates. Punjab National Bank (PNB) offers 3.00-5.25 per cent, depending upon the duration of deposits. Senior citizens are offered 50 basis points more than that. ICICI Bank also offers interest rates in the range of 2.50-5.75 on its fixed deposits. These interest rates are for deposits below Rs 2 crore.
Apart from bank FD, there is a corporate FD also, which is a type of fixed deposit issued by non-bank companies including housing finance firms or other non-banking financial companies (NBFCs). These are the instruments through which companies raise funds from the public. These deposits are also rated for their credibility by rating agencies.
What is National Savings Scheme?
It is a low-risk savings scheme backed by the government and can be availed of at post offices across the country. It is currently offering a 6.8 per cent rate of interest per annum. It also has a number of features that suits investors in India and facilitates a fixed income and definite returns to generate the revenue.
A minimum investment of Rs 1,000 is required for this scheme, while there is no maximum limit. The plan has a lock-in period of five years and also offers tax benefits under Section 80C of the Income Tax Act.
The upside of the scheme is that it offers interest rates better than FDs.
The inflation rate in India stood at 7.01 per cent in June, which although is slightly lower than the 7.04 per cent in the previous month but still higher than the RBI’s comfort level of 6 per cent. Any return below this will mean negative return in real terms.
Given high inflation, the central bank’s Monetary Policy Committee may go for another rate hike in its policy review next month. It would raise interest rates, including on fixed deposits, in India further.
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