Small Savings Scheme - India
We just had our March, and it is that time of the year when a lot of words such as PPF, KVP, Sukanya Samriddhi Yojna, NSCs and the likes are thrown around. All these forms a part of the small savings scheme and I thought it’d be better to go small this time. So, grab that cup of Roohafza, for this is going to be interesting!
Central governments have been running a fiscal deficit for decades now. Fiscal deficit is nothing but the difference in government’s income and its expenses. For instance, if NDA spends ₹1000 this year and earns only ₹800 from taxes, disinvestments, loans then it will said to have a fiscal deficit of ₹200
But how do governments fund this deficit of ₹200, you may ask? It is majorly via borrowing through these two routes –Â
1.     Issue a 10-year maturity bond every year (G-sec) - This is similar to government issuing 10 x ₹20 bonds that people can purchase. In return, GoI will agree to pay you an interest of, say, 5% per annum with a full repayment of principal in 10 years. Remember the hefty loan you took for your education? You were the GoI if the loan were bonds, but more on bonds later
2.     Small Savings Scheme - Generally, big institutions – NBFCs, MFs, Banks, Corporates – participate in sale and purchase of bonds. In order to increase the retail participation, government floats these small savings scheme, i.e., the PF you pay is used by the government to make good of that fiscal deficit among other things
Now that we know what these schemes are, let’s see the products that form a part of this ecosystem. I believe, the below table should be helpful***
Time deposits, NSC (national savings scheme), KVP (Kisan Vikas Patra) work exactly like FDs – you pay a lumpsum at a given time with a promise from GoI that the amount will be paid at maturity along with a pre-determined interest
RDs, PPF, Sukanya (SSY – savings account for girl child, upto 2 in a family – below 10 years of age) work like SIPs. You invest at regular intervals and receive the full amount at maturity
PPF and SSY are with floating rates though, i.e., every time GoI changes rates, your accumulated amount also receives the new rate. Is this a decent thing to do? Well, as bad as it sounds, ‘yes’. As countries develop the rates offered for floating scheme should decline. However, this is not the case for KVPs, NSCs which will offer you the same rate at maturity as what was agreed-upon at the time of investment
You also get 80C advantage for an aggregate investment of ₹1,50,000 for SSY, PPF, NSC, FD (5 years) and Senior Citizen’s Saving SchemeÂ
So, that’s all for today. If you wish to know further, just ask your parents. They’ll happy knowing that their child is also interested in PPF in addition to hodling alt currencies
Goodbye. Have a nice day!
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*** The finance minister withdrew her decision of changing the rates of these savings scheme. The rates as of 4th April 2021, still stands as below
