Should you invest in small savings schemes amid the rising interest rates?
T
oday, you can choose from various investment avenues that offer lucrative returns. Among these tools are small savings schemes like the monthly income scheme. Like other instruments, these schemes offer returns depending on the interest rates decided by the government.
The government reviews the rate every quarter and for the July-September 2023 quarter, the interest rates on small savings schemes were hiked by 30 bps. This revision was particularly for the 1-year and 2-year term deposits and 5-year recurring deposits.
Small savings schemes like the Post Office MIS Scheme come with restrictions and lock-in periods, prohibiting premature withdrawal. This, coupled with a possible rate change every quarter, results in many investors wondering whether investing in these schemes is a good option.
Read on for deeper insights.
What are Small Savings Schemes?
Offered and managed by the government, small savings schemes are investment avenues that allow individuals to save and accumulate wealth. These schemes offer lucrative returns and tax benefits. Hence, they are an attractive option.
Moreover, these are government-backed schemes and, therefore, have low volatility. As such, you enjoy assurance of returns and capital security. Some of the most popular schemes are
? Post Office MIS Scheme, also known as the monthly income scheme or POMIS
? Public Provident Fund
? Senior Citizen Savings Scheme
? National Savings Certificate
? Sukanya Samriddhi Account
Investing in these schemes is fairly straightforward. All you have to do is submit the duly filled form and required documents at an India Post office near you.
Should You Invest in Small Savings Schemes Right Now?
Returns from any investment depend on the interest rates offered. Given the economic volatility, several investment avenues have witnessed a change in interest rates. For example, RBI kept the repo rate unchanged for the previous two meetings.
This resulted in banks, NBFCs, and other financial institutions slowing down the rate hikes. On the other hand, some avenues, like small savings schemes, have seen a rate hike. In fact, the government increased the interest rates for the quarter of April to June 2023 by 70 bps.
These interest rate hikes result in small savings schemes offering competitive returns compared to other avenues like fixed deposits. As such, investing in monthly income schemes or other small savings schemes can be a good option. This is especially true for those looking to secure returns at low risks.
However, it is crucial to keep in mind that the returns for these schemes may be lower than those of market-linked avenues. Given this, you can try to invest in avenues with different risk levels to get the most from your investment.
Other Benefits of Investing in Small Savings Schemes
Besides the interest earnings, you get to enjoy other perks with these investment avenues. Read on for an overview.
Minimal Investment Requirements
To maintain your investment in schemes like the monthly income scheme, you need to make a minimum investment. The amount can range from ?250 to ?1,000, depending on the scheme you choose.
Assured Returns
Small savings schemes are government-backed and are virtually risk-free. As such, you can enjoy assured returns on your investment and not stress about economic volatility.
Tax Benefits
Your investment in many of these schemes qualifies for tax benefits. These are usually deductions under various sections of the Income Tax Act. Some common schemes eligible are the SCSS and PPF. You get benefits under Section 80C of the I-T Act, going up to ?1.5 Lakhs.
Offers Portfolio Diversification
Given that these schemes offer returns with low risk, they can be viable options to diversify your portfolio and mitigate the risks. This way, you can keep your accumulated corpus secure.
This is particularly viable for investors with market-linked investments. These schemes help inject stability into the portfolio, which can help offset certain losses.
The Interest Rates for Different Small Savings Schemes
Here is an overview of the recent interest rates for different small savings schemes
Disclaimer The rates mentioned above are subject to change, and are true as of July 10, 2023.
The above is just a glimpse into the interest rates offered on small savings schemes. As you can see, there are some schemes, like the Post Office MIS Scheme, with interest rates that were unchanged.
Things to Remember When Making Investment Decisions
Investments, whether in the monthly income scheme or a fixed deposit, require careful consideration. This helps ensure you get the returns you expect.
Keep the following points in mind before you begin an investment
? Assess your goals and current financial standing
? Evaluate the investment horizon
? Invest per your risk tolerance
? Diversify your investment portfolio
? Check and compare the latest interest rates
In general, you should invest in avenues with different risk levels, appreciation, and asset classes. This will help you navigate interest rate fluctuations and ensure that your financial growth and investments are secure.
Use the online tools available to estimate your returns and plan your investments accordingly. Remember to keep a buffer, as the calculations would only be an estimate and not actual figures. This will help ensure that you get the required maturity amount and are not short-funded.
✔️ Should you invest in small savings schemes amid the rising interest rates?
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