PPF Rates May Fall Below 7%, Lowest Since 1974

The rate of return on Public Provident Fund (PPF) is all set to fall further to a 46 years low mark, i.e. below 7% as quarterly revision date is due next week.

The ET report says that owing to consistently declining bond yields, rates of return on small savings schemes will also fall. As a result, PPF will fall below 7% for the first time since 1974.

In April-June quarter, PPF rates were revised to 7.1% from 7.8% in the previous quarter. At the end of March, returns on 10-year bond averaged at 6.42%. Since April, the yield on 10-year bond has cut down to 6.07% on an average, and currently it is 5.85%. Thus, it is no brain teaser that the rate cut is due for small savings schemes.

The interest rate of all small savings schemes are linked to returns earned from government bond of similar maturity tenure. So based on average bond yield of the previous quarter, the rates for next quarter are announced at beginning of each quarter.

Let’s take a quick run through rate cuts of Government’s Saving Schemes in April, 2020.

As we have already seen unprecedented rate cut in the previous quarter, the further cut will take down short term investment yields to record low. While rates of PPF and Sukanya Smridhi Schemes are reset every quarter, Senior Citizen Saving Scheme, NSCs and KVPs give fixed return till maturity at contracted rate. So, investors can consider locking in these schemes at previous rates now.

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FD rates are already lowest than ever and almost touching the returns on Saving Account. Will all small saving schemes losing its sheen, where will investor park money for short term goals. Probably tax-free bonds, sovereign gold bonds and debt mutual funds are the only safe options left for investors now.