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Friday, 30 March 2012

With Increase in Interest rate Small savings become attractive

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RETAIL investors chasing high-interest bearing debt instruments can also look at several attractive postal schemes, including a new 10-year National Savings Certificate (NSC), introduced by the postal department last year in December.

Scheme of things: In December 2011, the department of posts revised the interest rate for several saving schemes and aligned them with comparable returns yielded by government securities of similar maturity.

The new 10-year NSCs has been introduced by the department of posts, which will issue certificates in denomination of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000.

Under this scheme, Rs 100 will grow to Rs 234.35 after 10 years.

The new 10-year NSC can be purchased by an adult for himself/herself or on behalf of a minor any time of the year.

Various time deposit schemes with maturity from one year to five years under the revised interest rates, which are compounded quarterly, offer attractive rates of interest to investors.

Fixed deposits: One year fixed deposit (FD) offers 7.7 per cent, two-year FD 7.8 per cent, three-year FD 8 per cent and five-year FD 8.3 per cent.

Monthly Income Scheme: Another very attractive scheme for investors is the Monthly Income Scheme (MIS), where annual interest rate offered now has gone up to 8.2 per cent from 8 per cent earlier. However, the 5 per cent bonus offered earlier on maturity, that is at the end of six years has been discontinued from December 1, 2011. Now the scheme matures in five years.

Under the MIS, an investor can deposit a maximum Rs 4.5 lakh in a single account and Rs 9 lakh in a joint account.

For postal Public Provident Fund (PPF) scheme too with effect from December 1, 2011, the rate of interest on the subscriptions made to the fund on or after and balances at credit of the subscriber in the existing PPF account will earn an interest at the rate of 8.6 per cent per annum.

PPF's interest rate was revised upward from 8 per cent to 8.6 per cent as well and the annual investment limit has been raised from Rs 70,000 to Rs 1,00,000.


PPF is the most popular taxsaving instrument, which offers a rebate under Section 88 of the Income Tax Act. Interest accrued is tax-free.

Also, in a worst-case scenario, a PPF account cannot be attached by the government or any court of law or through any decree.

Among post office schemes, PPF continues to be attractive, but, other schemes also provide alternatives, such as bank fixed deposits and one-time issues like taxfree bonds from PFC and NHAI

Rural push: post office schemes are more suited for rural folks and for people in smaller towns where people have plenty of time, because dealing with post offices, particularly redemptions, takes a lot of time.

Core banking solution (CBS): With the banking services at the post offices now slated to have core banking features, it will be possible for post office savings account holders to withdraw money from any location through ATMs.

According to officials of the department of posts, the core banking transition process is at present underway; the customer can avail of core banking solution in 2013.

Savings accounts: The recent revision in interest rates for savings bank account and freeing of the Rs 1,00,000 limit is, perhaps, a step to align postal banking services with the soon-to-be introduced core banking solution.

Savings account maintained with post offices now from October 1, 2011, will have no limit on retaining balance in single as well as joint savings account, against Rs 1,00,000 limit earlier. A depositor or depositor(s) can deposit any amount into a single as well as joint savings account now. Maturity value of any savings instrument from the department of posts can be credited into savings account of the depositor standing in the same post office, irrespective of the balance in the account.

Earlier, depositors could not keep more than Rs 1,00,000 in a savings account.

From the financial year 2011-12, interest income of Rs 3,500 in the case of single account and Rs 7,000 in case of joint account will be exempted from income tax.

Along with core banking facilities for its customers, the department of posts is looking at new business opportunities. The department of posts has invited a feasibility report from various consultancy firms for setting up a new business structure under it for managing and developing the emerging and premium services in the postal sector.


It is in the process of preparing a project report for setting up the business structure.

The department of posts presently has a vast mandate that ranges from delivery of letters to provision of banking and insurance services. The department is focusing on the international postal business, premium services and emerging services, so that the commercial potential of these business streams is fully exploited and the services are run in a more professional manner.

The department intends to explore the feasibility and viability of setting up a dedicated, wholly-owned company for this purpose.

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  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

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