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India Today
26-06-2025
- Business
- India Today
Are your savings at risk? Government may slash PPF, NSC rates next week
The government may lower interest rates on small savings schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), and others during its upcoming quarterly review on June 30, 2025, reported The Economic Times (ET).If rates are revised, the changes will come into effect from July 1 for the July–September quarter of far this year, interest rates for schemes such as Sukanya Samriddhi Yojana (SSY), Senior Citizens Savings Scheme (SCSS), and Post Office term deposits have remained unchanged. However, this may not continue in the next A RATE CUT IS BEING CONSIDEREDOne of the key reasons behind this expected change is the Reserve Bank of India's decision to cut the repo rate by a total of 1% so far in 2025. The central bank reduced the repo rate in February and April by 25 basis points each, followed by a larger 50 basis points cut in have already responded by lowering interest rates on fixed deposits. Some have even discontinued special FDs that offered higher returns for limited yields, which influence the interest rates of small savings, have also fallen. According to the 10-year government bond yield dropped from 6.779% on January 1 to 6.247% by June 24 — a decline of 0.532%. Lower bond yields are usually a sign that small savings rates may be THESE RATES ARE CALCULATEDInterest rates for small savings are set based on the Shyamala Gopinath Committee's recommendations. The formula uses the average yield of government securities in the secondary market and adds a 25-basis-point instance, the average 10-year G-sec yield between March 24 and June 24, 2025, is 6.325%. Adding 25 basis points brings it to 6.575%. Currently, PPF offers 7.10%, which is much higher than the formula suggests. This difference is why a cut is being considered, though the government may still choose to hold rates to ET, Rajani Tandale, Senior Vice President – Mutual Fund at 1 Finance, said the RBI's 50-basis-point cut in June, along with earlier reductions, brings the total repo rate cut in 2025 to 1%. She said this aligns with the central bank's aim to support growth by lowering borrowing costs.'As a result, interest rates for small savings schemes are likely to be lowered,' she said, while noting the final call will depend on the government's review and current market Shinghal, Founder and CEO of Scripbox, also told ET, 'SSS rates, while administratively set, are typically aligned with prevailing interest rate trends and yields on government securities.'He added that several banks have already reduced fixed deposit rates, and this shows broader rate transmission is happening. According to him, it is likely that PPF, SSY, and NSC interest rates could be cut by 25 to 50 basis Sarkar, Co-Founder of Wealth Redefine, shared a slightly different explained that while a 1% cut in repo rate points towards lower returns on small savings, the decision isn't automatic.'These schemes are lifelines for pensioners, retirees and middle-class households. A big cut could hurt them, especially when inflation is low and FD rates are already falling,' he told added that while a small cut of 0.1% to 0.3% is possible, a sharp drop seems unlikely. The government, he noted, may even choose to keep rates steady to protect INVESTORS SHOULD DO NOWThose planning to invest in small savings schemes should consider doing so before June 30. If they invest before the new rates take effect on July 1, their returns, especially for time-bound schemes like NSC, SCSS, and time deposits, will remain locked at the current rates until and SSY, however, are not fixed-rate investments. Their interest rates change over time and are calculated monthly. So, even if you invest now, future interest payments could be affected by a rate said 'Investors may consider locking into current Small Savings Scheme rates before the revision.' He also suggested that in a falling interest rate environment, long-term debt funds and target maturity bonds might become attractive alternatives for those looking to preserve real returns.(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- EndsMust Watch advertisement
Economic Times
26-06-2025
- Business
- Economic Times
Are PPF, NSC and other small savings schemes headed for historic low interest rates? Govt to decide next week
iStock The interest rates for PPF, NSC and other small savings schemes are set to be reviewed on June 30, 2025. The new rates will take effect for the July-September quarter of FY 2025-26. So far this year, the interest rates for Post Office savings schemes, including the Sukanya Samriddhi Yojana and the Senior Citizens Savings Scheme, have remained unchanged. But this could change starting July 1, 2025. The Reserve Bank of India (RBI) has cut the repo rate thrice since the start of 2025. The central bank first cut the repo rate by 25 basis points in February, then again by 25 basis points in April and by 50 basis points in June. To date, the central bank has cut the repo rate by 1%. The banks have reduced the interest rate on fixed deposits in response to the repo rate cut. Some banks have also discontinued their special FDs, which offered higher interest rates compared to normal bank FDs for a specified period. The 1% cut in repo rates has also brought down bond yields. Investors need to keep in mind that there is a positive correlation between bond yields and the RBI's policy rates. So, whenever market expects the RBI to reduce the repo rate, bond yields tend to drop as per data from the 10-year G-sec bond yield was at 6.779% on January 1, 2025. But by June 24, 2025, it had fallen to 6.247%. This means the bond yield has decreased by 0.532% so far and a further downward adjustment cannot be ruled out. Why bond yield and repo rate cuts matter The interest rate on the Post Office Savings Scheme is determined on the basis of the recommendations of the Shyamala Gopinath Committee. According to the recommendations accepted by the Finance Ministry, secondary market yields on Central Government Securities of comparable maturities should serve as benchmarks for the interest rates on various small savings instruments, along with a positive spread of 25 basis points. This means that the interest rate of a 5-year time deposit should be based on the yield of 5-year G-secs prevailing in the secondary market plus 25 basis points. For PPF, the average yield of 10-year G-sec between March 24, 2025, and June 24, 2025, is 6.325%, according to Adding 25 bps on this, will bring the PPF interest rate to 6.575% as per the formula recommended by the committee. Currently, PPF offers 7.10% to the investors. Going by the set methodology, a repo rate cut and a fall in bond yield indicate that interest rate on small savings scheme may also be cut keeping in view of the prevailing interest rate in the market. However, this does not always reflect in the final decision taken by the government. Will interest rate on PPF, NSC, SCSS and other small savings be cut? ET Wealth Online spoke to experts to determine whether interest rates on PPF, NSC, and other small savings are likely to be cut. Here's what they have to say: Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance, says: Given its focus on fostering economic growth through a more accommodative monetary policy, the Reserve Bank of India (RBI) reduced the repo rate by 0.5% on June 6th, bringing the total reduction to 1% in 2025. As a result, interest rates for small savings scheme are likely to be lowered. So, a reduction in interest rates for small savings schemes is anticipated. Since the RBI is prioritising growth through lower borrowing costs, a corresponding rate cut for small savings schemes is expected in the next update. The final decision will depend on the government's quarterly review and prevailing economic conditions. According to Atul Shinghal, Founder & CEO of Scripbox, says: With the Reserve Bank of India cutting the repo rate by a cumulative 100 basis points in 2025, attention is now on the upcoming quarterly revision of small savings scheme (SSS) interest rates. SSS rates, while administratively set, are typically aligned with prevailing interest rate trends and yields on government securities. In recent weeks, several banks have already begun reducing their fixed deposit rates, signalling broader rate transmission across the financial system. Given the sharp monetary easing and the government's emphasis on fiscal prudence, it is likely that SSS rates for instruments such as the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and National Savings Certificate (NSC) could be cut by 25-50 basis points. Soumya Sarkar, Co-Founder, Wealth Redefine, says: These interest rates on small svaings schemes usually move with market trends, but the decision is not automatic as while deciding rates, the government also takes note of savers' needs. This year, the RBI has cut the repo rate by 1%, pushing overall interest rates lower. Normally, this would mean small savings rates could drop too, to stay in line with bank FDs and bonds. But there's a catch: these schemes are a lifeline for retirees, pensioners, and middle-class households. A big cut could hurt their income, especially when inflation is low and bank FD rates are already falling. The government also keeps political and social factors in mind, after all, millions depend on these schemes. So, while a small cut (say, 0.1-0.3%) is possible, a sharp reduction seems unlikely. The government might even hold rates steady to support savers, now that elections are over and inflation isn't a worry. A minor trim could happen, but don't expect a major drop. The government will likely balance market trends with savers' interests. Investors planning to invest in various small savings schemes should do so on or before June 30, 2025. This is because any rate cut will take effect from July 1, 2025. If you invest in time deposits, recurring deposits, Senior Citizens Savings Scheme, Monthly Income Account, National Savings Certificate and Kisan Vikas Patra, on or before June 30, 2025, your investment will be locked at current high interest rate and will not be impacted by subsequent rate cut effective from July 1. This is because once the investment is made, then interest rates are locked till maturity investment in PPF and SSY will be impacted, as interest on account balances keep changing with time and are calculated on a monthly says, "Investors may consider locking into current Small Savings Scheme rates before the revision. Additionally, as interest rates trend lower, long-duration debt funds and target maturity bonds become more attractive for investors seeking to preserve real returns in a softening rate environment."
Economic Times
26-05-2025
- Business
- Economic Times
Wealth edition 26-May-2025 to june-1-2025
Some beat the blues, others feel them Live Events Know your fund Asset allocation funds came into the limelight when the equity market turned sour towards the end of last year. Amid a prolonged market slump lasting over six months, the primary task for these funds was to cushion the downside. Now, as the market rebounds, these funds have had a chance to prove their mettle. So did your multi-asset fund or dynamic asset allocation fund do its job?The sharp correction in the broader market since October last year tested many investors ' nerves. The BSE 500 index fell nearly 21% by 7 April 2025 from its 27 September 2024 peak. It has since recovered, and now hovers 8% off its previous high. Asset allocation funds as a basket have fared better, but most were not completely immune to value erosion. During this period, multiasset allocation funds saw an average NAV decline of 6.7%, while dynamic asset allocation funds recorded a drop of 8.5%.There were some outliers in this space. Among the multi -asset funds that averted a drawdown were Edelweiss Multi Asset Allocation, WhiteOak Capital Multi Asset Allocation and Franklin India Multi Asset Solution Fund of Funds. A few others like Quantum Multi Asset Fund of Funds , HDFC Multi-Asset Active FoF, ICICI Prudential Asset Allocator Fund, among others, managed to limit the downside. Parag Parikh Dynamic Asset Allocation was the only scheme from the dynamic asset allocation basket to deliver a positive return in this period. However, many like DSP Dynamic Asset Allocation, Franklin India Balanced Advantage and SBI Balanced Advantage cushioned the downside well.A closer look at the asset allocation patterns of these funds reveals why they could hold their ground so well. Not surprisingly, the funds that averted a drawdown had among the lowest exposure to equities. In a category populated by funds taking a distinct equity slant, it was the funds that practiced a prudent asset allocation approach that kept investors in the gold allocation in a few funds also helped prop up returns further. Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance, asserts, 'During downturns, these funds typically benefit from bond and gold exposure, which help offset equity losses.'On the flip side, several funds saw sharp drawdowns during this period, including Motilal Oswal Balanced Advantage, Motilal Oswal Multi Asset, HSBC Multi Asset Allocation and Quant Dynamic Asset Allocation. Some of these are aggressive by nature. These do not necessarily cater to the risk profile of investors that asset allocation funds typically attract. The equity tilt in some funds allows them to retain favourable tax treatment, but risk rises. Tandale says, 'Since October 2024, funds with higher allocations to bonds or gold likely cushioned losses more effectively. In contrast, equity heavy portfolios experienced sharper declines but also stronger rebounds.'Bhavana Acharya, Co-founder, observes that the risk in some funds emanates from higher exposure to the broader market. 'Individual stocks fell much more than the index during the correction. Funds holding these names got hit far more despite having sizeable allocation to fixed income,' Acharya says. For instance, Motilal Oswal Balanced Advantage and Motilal Oswal Multi Asset had 60% and 50% allocation, respectively, to mid- and small caps at the end of September increased further to 73% and 59% by December end. Samco Dynamic Asset Allocation, HSBC Multi Asset Allocation and Shriram Multi Asset Allocation also ran high allocation to mid- and small-caps, hurting returns amid the market crash. Many of these affected funds did not hedge their equity allocation or did so Dynamic Asset Allocation, Motilal Oswal Multi Asset, Quant Dynamic Asset Allocation and Shriram Multi Asset Allocation, among others, had marginal or no hedging of existing equity positions at September-end. Samco MF's offering raised its hedged positions only later. At the other end, Edelweiss Multi Asset Allocation's fully hedged exposure to equities helped it stave off a choice of funds in this space is critical to your investing experience. In turbulent phases, an asset allocation fund truly serves its purpose if it allows you to keep your cool and not throw in the towel. It gives you the comfort of staying invested even during the tough times. By retaining your invested money, it provides you the platform to continue wealth creation irrespective of the market's is a good idea to look under the hood, insist experts. Acharya remarks, 'The asset allocation construct sounds appealing but what funds do within the portfolio is important. Not all asset allocation funds have the ability to contain downside. Some are more aggressive than others. Investors must know how the fund approaches asset allocation to know if it aligns with their expectations.'Given the role these funds play in the portfolio, experts reckon it is better to opt for funds adopting a moderate-toconservative stance. Avoid chasing returns in this category. Funds that emphasise on risk construct, rather than offering an edge in returns, should be your Belapurkar, Director, Fund Research, Morningstar India, asserts, 'We prefer strategies that take graded exposure to underlying asset classes, that moves within a narrow band. Funds moving from 20% to 80% in equities are essentially trying to time the market, which can deliver lumpier returns.' He emphasises that oscillating equity exposure may not always work in the funds' favour. 'If the fund model doesn't pull equity allocation back when market recovers, it can hurt the fund performance, erasing gains on the downside,' Belapurkar reckons asset allocation is highly personal and cannot be generalised. Instead of relying entirely on a single fund, investors may be better served by creating their own allocation using low-cost index equity funds, debt funds, and gold ETFs. 'This approach offers greater transparency, better control, and often lower expense ratios than packaged multiasset or balanced advantage funds, which may not suit every investor's profile or goals,' she argues.
