Not all small savings schemes are holding their ground amidst the new rate dynamics. Those that lost their 25 basis points interest rate spread advantage over G-Sec rates, took sharp cuts in March and do not have the Section 80C tax break, have lost sheen. This group comprises time deposits of one, two and three years, recurring deposits, Kisan Vikas Patra (KVP) and the post office monthly income scheme (POMIS).

The shorter-tenure post office time deposits, for instance, now offer 1-1.3 percentage points less than in March. Add to this, taxability of returns and no tax break on the initial investment and these schemes are now at par or worse off than bank deposits of similar tenure — in line with the government’s intention. The post office recurring deposit (five-year tenure) now offers 1 percentage point lower than in March. The saving grace is the rebate on advance deposits if at least six instalments are paid in advance. For instance, on a recurring deposit of ₹1,000 a month, you get a rebate of ₹100 if you pay six instalments in advance and ₹400 if you pay 12 instalments in advance. This has helped the instrument retain an edge over bank recurring deposits, but only just.

The Kisan Vikas Patra has seen a 90 basis point rate cut. At 7.8 per cent, the amount invested will now take 110 months to double, compared with 100 months earlier. Even earlier, the PPF and NSC were better options; the lead has widened now. The advantage of no restriction on investment amount stays, though.

The five-year POMIS, which pays out interest on a monthly basis, has seen its rate dip 60 basis points to 7.8 per cent. Though still somewhat superior to most bank deposit options, the reduced income and the same-as-before maximum investment limit of ₹4.5 lakh in a single account are dampeners. The five-year post office time deposit is superior.

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