NEW DELHI: The drop in economic activity and subdued inflation do not bode well for interest rates in the near-term. The Reserve Bank of India’s Monetary Policy Committee has already cut repo rates sharply at its last meeting, and experts say another cut may not be long in the offing. The fall in repo rates has only made fixed deposit returns even less attractive than they were earlier.
From the end of May, major banks like State Bank of India (SBI) have pared their FD rates down as much as 0.4 per cent (40 basis points). SBI now offers a rate of 2.9 per cent for an FD with a tenor of 7-45 days and 5.4 per cent for a tenor of 5-10 years (for deposits below Rs 2 crore). HDFC also offers a similar range of interest — 3 per cent for 15-29 days up to 5.5 per cent for 5-10 years.
For investors focusing on a medium to long-term goal, the government’s decision to leave the small savings scheme rates unchanged opens up more attractive options depending on the nature of the goal and eligibility. For instance, the Public Provident Fund remains a great choice for building a relatively risk-free corpus from a long-term perspective.
The PPF offers an interest rate of 7.1 per cent currently. However, the PPF is also a long-term investment. The minimum lock-in period is 15 years and premature closures are only possible after five years in cases of extreme need, such as treatment for life threatening disease of self or dependent and a child’s higher education. Partial withdrawals after completion of five years or loans based on the balance in the PPF account is also possible.
Another small savings scheme offering attractive rates of interest for a more medium-term goal is the post office term deposit, which offers 6.7 per cent interest for five years and 5.5 per cent for three years. Anyone may open a post office deposit, even children 10 years and above, but the maximum amount that may be invested is Rs 15 lakh currently. Senior citizens, for whom SBI and HDFC offer 6.2 per cent and 6.25 per cent for a five year deposit, may also wish to examine the Senior Citizens Savings Scheme. The SCSS offers 7.4 per cent for a five year FD with a maximum limit of Rs 15 lakh.
For investors with girl children below ten years of age, the Sukanya Samriddhi Yojana is a good option, offering 7.6 per cent and allows a maximum of Rs 1.5 lakh to be deposited per annum. However, the scheme matures only after 21 years or until the girl child marries after 18 years of age.