PPF rates are falling: What should the common investors do?


The rate of return of PPF as well as other Government investment vehicles is now at historic low. The rate will go down further. What should the common investors do now? They must look for better alternatives. Read this article to know about those better alternatives.

Public Provident Fund (PPF) is the most reliable investment vehicle for lakhs of salaried people all over the country. The salaried people of India have tremendous faith on PPF because it is backed by the Government of the country, the rate of return was good and it is tax-saving. However, over the years, the rate of return from PPF has been coming down steadily. In September 2016, the Government has again cut down the interest rate of PPF and other deposit schemes run by the Government (Kisan Vikas Patra, Girl Child Scheme, Senior Citizens' Deposit Scheme, etc) by another 0.1 percent per annum. As a result, the rate of return of PPF is now at historic low. The present rate of return from PPF is now only 8 percent per annum. So, what should the common investors of the country do in this context? Let us discuss the possible alternatives of PPF.

Market-linked return

The investors who keep their hard-earned money in the PPF, generally tend to forget that unlike earlier days, PPF rate is now market-linked. The rate of return of various Government deposits including PPF are re-set in every quarter. The rate of return of Government schemes is now depending upon the interest yield on Government security. The financial experts believe that the rate of return of the Government deposit schemes will go down further in the present falling interest rate regime. However, the change of policy is very difficult to be absorbed by the common people, who have developed the habit of investing money in the PPF over the years (even in some cases, over the generations) for safety, tax saving and reasonably good rate of return.

Searching better alternatives

The abysmally low rate of return of the PPF and other Government deposit schemes has been forcing many retail investors to check other options of investment. Although official inflation rate may be lower than the rate of return from PPF, the real inflation is much more. As a result, common investors do not get even the invested amount of money taking into account inflation, at the time of final withdrawal or at the time of retirement. So the financial experts are insisting that the salaried people must come out from the cocoon of perceived safety of the PPF. For the purpose of tax-saving and getting a reasonable return, the market experts are now advising salaried persons to opt for Equity Linked Savings Scheme (ELSS) and National Pensions Scheme (NPS). So far as NPS is concerned, a common investor can control and change (if found necessary) the percentage of equity component in respect of his/her investment every year. However, in respect of ELSS no such option is available. The entire amount in ELSS is invested in equities. But it can be stated that without any iota of doubt that in the long run, ELSS and NPS are not as risky as are being perceived. These two are ideal investments vehicles for the purpose of tax saving and inflation-adjusted return.

Considering the above factors, the common investors, especially who are below forty, should start investment in ELSS and in NPS for a reasonable inflation-adjusted, tax-free return and comfortable retired life in future.


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