Dr. Sanjiv Agarwal
Based on the recommendations of Committee for Comprehensive Review of National Small Savings Fund, Central Government had recently issued two notifications on 25th and 29th November, 2011 which come into force from December 1,2011. The new savings regime offer better returns than ever and compared to other investments, offer adequate post tax return and maximum security to the principal amount invested. So if one is willing to invest in fixed income instruments, better to choose one from Government’s saving plans .
The Banks do offer fixed deposits of varied tenure with interest ranging between 7 to 10 percent and insurance cover from DICGC, a Government organization. However, these deposits are not income tax efficient and post tax returns are lower when compared to other saving products.
We.f. December 1,2011, Public Provident Fund (PPF) deposits will earn tax free interest @ 8.6 percent per annum while National Saving Certificate (NSC) will also yield interest @ 8.7 percent which also enjoy tax benefits. With high rate of inflation, though these returns may sound lower but their tax free nature make them a wise choice . Also investors can now invest upto Rupees one lakh per annum in a PPF account.
How the Schemes Compare
|Option||Period||Return (Pre tax)||Return ( Post tax)|
|Bank Fixed Deposit||5 years||9.50%||6.50%|
|Company Deposit||3 years||12.00%||8.40%|
|NSC||10 years||8.70 %||7.30%*|
|PPF||10/ 15 years||8.60 %||8.60 %|
*Deemed to be reinvested for first 5 years .
Though the company deposits do carry the risk of security but these are considered to be unsecured without any guarantee, it is advisable to choose corporate deposits of only reputed companies or known promoters with proven track record. Of these, PPF is most attractive savings scheme but it requires a 10 or 15 years commitment. It offers liquidity as well as flexibility to the investor in terms of time and amount both. PPF accounts for about 50 percent of small savings. A new 10 year national saving certificate (IX series ) 2011 has been launched wef 1 December 2011 which will earn an interest of 8.7% per annum compounded semi- annually. On every Rs 1000, investor will get Rs 2343.50 after ten years. One can invest in different denominations from Rs 100 to Rs 10000 and there is no upper limit of investment. It can also be pledged as a security.
Thus, for small and risk averse investors, it would be desirable to invest at this point in time in safe instruments offered by small saving plans which not only provide liquidity, safety and flexibility but also offer tax efficient returns.