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PPF, other small savings to fetch lower interest rate from January 1, 2018

NEW DELHI: The government on Wednesday slashed interest rates on small savings schemes, including NSC and PPF, by 0.2 percentage point for the January-March period from the rates applicable in the previous quarter, a move that will prompt banks to lower deposit rates.
At the same time, investments in the five-year Senior Citizens Savings Scheme has been retained at 8.3 per cent. The interest rate on the senior citizens’ scheme is paid quarterly.

A finance ministry notification said rates have been reduced across the board for schemes such as National Savings Certificate (NSC), Sukanya Samriddhi Account, Kisan Vikas Patra (KVP) and Public Provident Fund (PPF). However, interest on savings deposits has been retained at 4 per cent annually.

Since April last year, interest rates on all small savings schemes have been recalibrated on a quarterly basis. As per the notification, PPF and NSC will fetch a lower annual rate of 7.6 per cent while KVP will yield 7.3 per cent and mature in 11 months.

The girl child savings scheme Sukanya Samriddhi Account will offer 8.1 per cent from existing 8.3 per cent annually. Term deposits of 1-5 years will fetch a lower interest rate of 6.6-7.4 per cent, to be paid quarterly, while the five-year recurring deposit is pegged at 6.9 per cent.

“On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis,” the ministry said, while notifying the rates for fourth quarter of financial year 2017-18.

While announcing the quarterly setting of interest rates, the ministry had said that rates of small savings schemes would be linked to government bond yields. The move is expected to see banks lowering their deposit rates in line with the small savings rate offered by the government.

On Wednesday, the government also said that it will borrow an additional Rs 50,000 crore from the market in the current fiscal year, triggering fears that the move may lead to a widening of the deficit target.

5 key reasons to choose an ELSS fund

Equity investors are usually a lot more cautious about losing money in the market. Smart investors, on the other hand, are cautious about saving money and investing with a longer term perspective. Equity linked saving scheme (ELSS) is ideal for the investors who wish to save tax. ELSS is precisely, a kind of mutual fund scheme that invests majority of its corpus in equity or equity related products. It’s February already! You might be looking forward to learn or know more about ELSS. Let’s learn 5 key reasons to choose an ELSS funds.

1. Tax Benefit

One of the primary reasons to invest in ELSS is to save tax. Investments in ELSS qualify for tax deduction under section 80C of the income tax act of 1961. But any dividend or long term capital gain earned by the investor is exempted from income tax. Simply, your returns from ELSS become tax free. Government of India also provides tax rebate for equity linked saving schemes (ELSS) u/s 80C of Income Tax Act 1961. You can invest into ELSS and deduct upto Rs. 1,50,000/- from your taxable income to effectively reduce your tax liability.

2. Lock in period

Pertaining to the performance of the mutual funds, good mutual fund portfolios are constructed for long term investments, however, they are not bound with the lock in periods. But in case of ELSS, the funds are locked in for at least 3 years. Which means, in ELSS fund you are obligated to stay invested for 3 years or more to exempt from taxes applicable on returns. This forcefully embeds a good habit to stay invested for a longer period.