While equity markets have been hovering around their all-time highs, institutional investors are perhaps hooked to the risky assets in their portfolio. Conservative investors, meanwhile, continue to invest a regular dose of investment in safe havens such as debt mutual funds, bonds, term deposits, and importantly — post office small savings schemes .
Before we proceed, let us understand what exactly these small savings schemes are?
Small savings scheme
Small savings schemes are popular investment schemes offered by the Government of India as part of the post office savings schemes.
Investment in these schemes is considered safe and secure and carries no risk and consequently, they attract a large number of retail investors because of the safety of capital and high rate of return they offer.
These schemes are run and managed through a large network of over 1.54 lakh post offices across the country.
Interest rates for small savings schemes for the second quarter of financial year 2023-24 i.e., July-Sep were revised recently.
While interest rates for some schemes such as savings deposit, three-year time deposit, five-year time deposit, and senior citizen savings scheme remained the same, the interest rates of remaining schemes witnessed a marginal hike.
The schemes that saw an increase include one-year time deposit, two-year time deposit and five-year recurring deposit (refer to the table below).
The highest increase of 30 basis points in interest rates was seen in five-year recurring deposits.
This was followed by an increase of 10 basis points in the interest rates of one-year time deposit and two-year time deposit.
Interest rates for some other small savings schemes such as monthly income account, National Savings Certificate (NSCs), Public Provident Fund (PPF), Kisan Vikas Patra (KVP) and Sukanya Samriddhi Scheme (SSS), too, remained same for Sept quarter.
Frequency of compounding
It is also important to note that frequency of compounding of interest varies from scheme to scheme. Some schemes offer annual compounding of interest whereas others offer quarterly or monthly.
The schemes that do quarterly compounding of interest include time deposit schemes (1-year, 2-year, 3-year, 5-year recurring deposit scheme), senior citizen savings scheme and Mahila Samman Savings Certificate.