The central government recently reversed its decision to cut rates on all small savings instruments. This decision has brought the topic of such instruments into the spotlight once again. Small savings instruments play a vital role in helping individuals achieve their financial goals over a specific period and are a primary source of household savings in India.
Small Savings Instruments: An Overview
There are 12 instruments in the small savings instrument basket. The collections from all small savings tools are credited to the National Small Savings Fund (NSSF).
Small savings instruments can be categorized under three heads:
1. Postal Deposits: These include a savings account, recurring deposits, time deposits with different maturities, and a monthly income scheme.
2. Savings Certificates: Notably, the National Small Savings Certificate (NSC) and the Kisan Vikas Patra (KVP).
3. Social Security Schemes: This category features schemes like Sukanya Samriddhi Scheme, Public Provident Fund (PPF), and Senior Citizens’ Savings Scheme (SCSS).
Rates of Small Saving Instruments
The rates for small saving instruments are announced quarterly, and theoretically, these rate changes are meant to be based on yields of government securities of corresponding maturity. However, it’s also important to note that political factors can have an influence on these rate changes.
In 2010, the Shyamala Gopinath panel, which was constituted on the Small Saving Scheme, suggested implementing a market-linked interest rate system for small savings schemes.
About National Small Savings Fund (NSSF)
The NSSF in the Public Account of India was established in 1999. The fund is administered by the Government of India, Ministry of Finance (Department of Economic Affairs) under the National Small Savings Fund (Custody and Investment) Rules, 2001. These rules were framed by the President under Article 283 (1) of the Constitution.
Objective of NSSF
The primary objective of establishing the NSSF was to de-link small savings transactions from the Consolidated Fund of India and ensure their operation in a transparent and self-sustaining manner. As the NSSF operates in the public account, its transactions do not directly impact the fiscal deficit of the Centre. This ensures that these savings instruments continue to offer attractive returns to individual investors, contributing significantly to national savings.
Small saving schemes provide an excellent tool for household savings and are crucial for an individual’s financial planning. With the government taking steps to keep these instruments attractive and sustainable, they continue to be an integral part of India’s savings landscape.