- Date : 05/04/2023
- Read: 3 mins
Tips for investors as small-saving schemes turn lucrative
The financial year 2022-23 ended on a high for small savings investors as interest rates were hiked. Schemes like the Post Office Monthly Income Scheme (POMIS), National Savings Certificates (NSC), and Senior Citizens Savings Scheme (SCSS) among others saw rate hikes. The interest rates on these schemes jumped from 10 to 70 basis points.
The hike in interest rates started in the October-November-December 2022 quarter. Ever since then, small savings have been seeing a consistent increase in their interest rates. The rates were increased in the January-February-March 2023 quarter too.
Here are the changed rates which have become effective from 1st April 2023 –
Though most schemes saw increased interest rates, there was no change for the Public Provident Fund (PPF).
Small saving schemes v/s other investment avenues
After the increased rates, small saving schemes have become more lucrative compared to other investment avenues. Here’s how –
- As the indexation benefit from long-term capital gains tax has been removed, debt mutual funds have lost their lustre.
- High-value traditional life insurance policies and unit-linked plans have lost their tax advantage after the amended rules in the previous and current Union Budgets.
- Bank fixed deposits do not offer as high an interest rate as small savings schemes now do. For senior citizens and other investors, these schemes can be a suitable choice for mid to long-term investment.
- There is no credit risk on small saving schemes since they are backed by the government.
- With a high-interest rate, the SCSS becomes attractive to senior citizens.
- Besides the term deposits, most small savings schemes qualify for a deduction under Section 80C under the old regime. Thus, if you invest in these schemes, you can save tax on the invested amount.
- If you are not looking for regular interest income, the National Savings Certificates can be a good choice.
- The Sukanya Samriddhi Yojana has an EEE (Exempt. Exempt, Exempt) status. The investment made, returns earned and the plan’s benefits are all tax-free. Thus, you can get maximum tax savings if you choose the SSY scheme.
Related - Find out the reasons why small saving schemes are a good investment choice
What should investors do?
With the latest rate hikes, investing in small savings schemes has become all the more attractive. These schemes can add a debt component to your portfolio and help you plan your taxes efficiently.
If you are a new investor, invest a part of your savings in small savings schemes and enjoy some of the highest interest income on fixed-income instruments. For existing customers, you can step up your investments or even invest in other schemes with a rate hike.
So, assess your investment needs and then make a prudent choice.
Related - Read what the Union Budget 2023 offered investors of small savings schemes
The financial year 2022-23 ended on a high for small savings investors as interest rates were hiked. Schemes like the Post Office Monthly Income Scheme (POMIS), National Savings Certificates (NSC), and Senior Citizens Savings Scheme (SCSS) among others saw rate hikes. The interest rates on these schemes jumped from 10 to 70 basis points.
The hike in interest rates started in the October-November-December 2022 quarter. Ever since then, small savings have been seeing a consistent increase in their interest rates. The rates were increased in the January-February-March 2023 quarter too.
Here are the changed rates which have become effective from 1st April 2023 –
Though most schemes saw increased interest rates, there was no change for the Public Provident Fund (PPF).
Small saving schemes v/s other investment avenues
After the increased rates, small saving schemes have become more lucrative compared to other investment avenues. Here’s how –
- As the indexation benefit from long-term capital gains tax has been removed, debt mutual funds have lost their lustre.
- High-value traditional life insurance policies and unit-linked plans have lost their tax advantage after the amended rules in the previous and current Union Budgets.
- Bank fixed deposits do not offer as high an interest rate as small savings schemes now do. For senior citizens and other investors, these schemes can be a suitable choice for mid to long-term investment.
- There is no credit risk on small saving schemes since they are backed by the government.
- With a high-interest rate, the SCSS becomes attractive to senior citizens.
- Besides the term deposits, most small savings schemes qualify for a deduction under Section 80C under the old regime. Thus, if you invest in these schemes, you can save tax on the invested amount.
- If you are not looking for regular interest income, the National Savings Certificates can be a good choice.
- The Sukanya Samriddhi Yojana has an EEE (Exempt. Exempt, Exempt) status. The investment made, returns earned and the plan’s benefits are all tax-free. Thus, you can get maximum tax savings if you choose the SSY scheme.
Related - Find out the reasons why small saving schemes are a good investment choice
What should investors do?
With the latest rate hikes, investing in small savings schemes has become all the more attractive. These schemes can add a debt component to your portfolio and help you plan your taxes efficiently.
If you are a new investor, invest a part of your savings in small savings schemes and enjoy some of the highest interest income on fixed-income instruments. For existing customers, you can step up your investments or even invest in other schemes with a rate hike.
So, assess your investment needs and then make a prudent choice.
Related - Read what the Union Budget 2023 offered investors of small savings schemes
