Despite recent increments in the interest rates of multiple small savings instruments (SSIs) over the past three quarters, some returns on these schemes are still notably lower than expected, based on calculations issued by the Reserve Bank of India (RBI).
Understanding Small Savings Instruments
Small savings instruments offer individuals the means to fulfill their financial objectives within a specific period. These instruments constitute a significant source of household savings in India, with the collections being credited to the National Small Savings Fund (NSSF). There are 12 different instruments in this basket categorized into three primary divisions: Postal Deposits, Savings Certificates, and Social Security Schemes.
Postal Deposits encompass savings accounts, recurring deposits, time deposits of varying maturities, and a monthly income scheme. Savings Certificates include the National Small Savings Certificate (NSC) and Kisan Vikas Patra (KVP). Social Security Schemes include the Sukanya Samriddhi Scheme, Public Provident Fund (PPF), and Senior Citizens ‘Savings Scheme (SCSS).
Rates Determination for Small Saving Instruments
Interest rates for small saving instruments are announced quarterly, with their formulation theoretically based on corresponding maturity yields of G-Secs. However, political factors may also influence rate alterations. In 2010, the Shyamala Gopinath panel suggested a market-linked interest rate system for SS Schemes.
The prevailing interest rate for various SSIs in India derives from a formula dependent on the average quarterly yields of G-Secs for the first three of the preceding four months. This formula determines how much interest is payable to investors in SS Schemes.
Highlighting Key Small Savings Schemes
There are several important small savings schemes available, each catering to different needs and demographics:
– The Sukanya Samriddhi Account Scheme: This scheme promotes the welfare of girl children in India, with parents or guardians permitted to open deposits for up to two daughters under ten years of age. The scheme permits three accounts for twin or triple girl children. Deposits can be made for up to 15 years.
– The Senior Citizens’ Savings Scheme: Designed to provide regular income for citizens over 60 years old. Eligibility also extends to those aged 55-60 who opt for Voluntary Retirement Scheme (VRS) or Superannuation, and retired defense personnel aged between 50-60 years.
– Monthly Income Scheme: Allows monthly investments for Indian residents aged above ten. This scheme has a 5-year lock-in period, with premature withdrawal permitted after one year with a penalty.
– Public Provident Fund (PPF): Encourages individuals to save for their retirement. This scheme has a tenure of 15 years, extendable for an additional five years after maturity.
– Kisan Vikas Patra (KVP): Managed by the Government Savings Certificates Act 1959 and made available to resident Indians and trusts.
– Mahlia Samman Savings Certificate: A new, one-time scheme available for women and girls for two years up to March 2025.
Each scheme has its specific rules regarding minimum and maximum deposits, maturity periods, interest rates, and withdrawal options, thereby providing a robust range of choices for savers looking to secure their financial future.