‘The interest rate of the Public Provident Fund (PPF) may be hiked soon,’ said Amit Gupta, MD, SAG Infotech

Interest rates on Public Provident Fund (PPF) and other modest savings accounts may increase soon due to the increase in the yield on government securities (G-sec). By the end of this month, these rates will be up for review, which occurs every quarter. The PPF interest rate is currently 7.1%, but the yield on government securities has already surpassed 7.3%. Amit Gupta, MD, SAG Infotech, stated that the Public Provident Fund (PPF) interest rate would be increased shortly.

For the past 27 months, there hasn’t been a change to the interest rate on small savings plans. In the quarter from April to June 2020, the rates were last reduced.

Amit Gupta said that there is a direct relation between small savings investments and Government-Sec returns. “That’s why this increase in G-Sec yield will not only increase the interest rate on PPF but will also have an impact on the rates of small savings investments,” he said.

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Vivek Iyer, Partner, Grant Thornton Bharat said that growing inflation on a worldwide scale is a phenomena that depletes people’s savings. Interest rates must rise in order to successfully control inflation, according to monetary policy. The rate rises are not passed on to the savers if the inflation is temporary.

However, he continued, inflation appears to be here to stay for a while, and raising PPF rates is the smart course of action while bearing in mind the underlying purchasing power that inflation depletes.

National Savings Certificates (NSC), KVP, Time Deposits, Senior Citizens Savings Scheme, and Sukanya Samriddhi Yojana are a few more minor savings options in addition to PPF.

These small savings plans have variable interest rates that are linked to market yields on government securities with a spread of 0-100 bps, and they are fixed at quarterly intervals around and above those market yields. “It is expected that with the rise in G-sec yield, investors in small savings products including National Savings Certificate, Time-Deposit, KVP, Public Provident Fund, Sukanya Samriddhi Yojana and Senior Citizen Savings Scheme may also see an increase in their investment rates,” Amit Gupta added.