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Should You Invest In PPF After Rate Cuts?

    Mr. C.S. Sudheer | Wednesday, April 05,2017, 03:09 PM
 

 

The Government lowered interest rates on small saving schemes like PPF, Kisan Vikas Patra and Sukanya Samriddhi Scheme  by 0.1%. The interest rate offered on the public provident fund popularly called PPF, has been cut from 8% in January - March 2017 to 7.9% for the quarter from April - June 2017.

This is real bad news for you and crores of small savers who invest in the PPF and a number of small saving schemes. You simply love investing in the PPF. It gives you returns much higher than most financial products around. Just take a look at interest rates offered by banks on fixed deposits? Banks have been cutting interest rates offered on FD's in recent times.

Now to the big question....Should you invest in PPF after this rate cut? Let's find out. Want to know more about investing in PPF and other small saving schemes? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.

 

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Should You Invest In PPF After Rate Cuts?

 

PPF cuts interest rates. Should you invest in it?

 

After the Government cut interest rates, PPF is at a 40 year low. You are disappointed. Your PPF is offering an interest of just 7.9% for the quarter of April-June 2017. You're thinking....Should I even bother looking at the PPF?

Interesting question....But before I answer this, let me ask you a question. What are your alternatives? Will you invest your money in bank fixed deposits? Most banks offer you an interest of just 6-7% a year on your fixed deposit.  The interest you earn is taxed. Are you happy with this? You can always invest in equity mutual funds and stocks..Right? The problem....Equity gives you high returns but at high risk. If you are a conservative investor, you would not invest in equity.

Now to the question, Should you invest in PPF? PPF currently offers an interest of 7.9% for the quarter of April-June 2017. This interest rate is much higher than a fixed deposit. PPF also enjoys EEE benefits. The amount you invest is tax deductible up to INR 1.5 Lakhs a year under Section 80C of the income tax act. The interest you earn and the amount withdrawn at maturity is tax free. Isn't this a better deal than investing in an FD?

 

Why you have no choice but to invest in PPF?

 

The Prime Minister Narendra Modi, demonetized 500 and 1000 rupee notes on November 8th  2016.  You and other citizens rushed to banks and post offices to deposit old 500 and 1000 rupee notes within the deadline of December 30th 2016.

Today, banks are flush with cash. You and other citizens invested most of the demonetized notes in savings bank accounts. Banks pay you just 4% interest a year on your savings bank account. The money you have deposited with banks is used for lending by the bank.

Unfortunately, the lending business of banks has not exactly taken off. What will banks do with all your deposits? Why should banks pay an interest of 7% a year on your FD's when they don't need your deposits? Expect banks to start cutting interest offered on FD's. Still interested in fixed deposits or would you be interested in investing in the PPF?

Yes....Interest offered on small saving schemes is going down. PPF used to offer a much higher interest rate. Now it's going down. Yet, PPF still remains one of the best investments around. Be Wise, Get Rich.

Mr. C.S. Sudheer

Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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