Should you invest in small savings schemes like PPF now?
What's the story
The new tax regime has left many taxpayers questioning the value of investing in small savings schemes like the Public Provident Fund (PPF), Senior Citizens Savings Scheme (SCSS), and National Savings Certificate (NSC) in India. These schemes are usually popular among investors looking to claim tax deductions under Section 80C of the Income Tax Act. However, under the new regime, these deductions are not applicable. So, should you invest in small savings schemes? Let's find out.
Scheme comparison
Comparison of FDs and small savings schemes
When comparing fixed deposits (FDs) with small savings schemes, the former usually offer lower interest rates. While most FDs give an interest rate of around 6-6.5% per annum, small savings schemes offer more than 7% per annum. For example, the Post Office Monthly Income Scheme offers 7.4%, SCSS offers 8.2%, KVP offers 7.5%, PPF offers 7.1%, and Sukanya Samriddhi Account gives an interest of 8.2%.
Scheme advantages
Tax benefits and investment discipline
Another major advantage of small savings schemes is that the income earned from certain schemes, like the PPF, is tax-free, even under the new tax regime. For instance, if a bank offers 7% on an FD scheme, a taxpayer in the 10% tax bracket would pay 10% tax on their income, leaving only 6.3%. However, interest earned from schemes like PPF remains exempt from tax even in this regime.
Investment strategy
Long-term commitment and wealth creation
Small savings schemes also promote an investing discipline due to their long lock-in periods. For example, investing in a scheme like PPF with a 15-year lock-in period is a step toward retirement savings. Similarly, investing in the Sukanya Samridhi Yojana means you're reserving some money for your child's future. "Investing a part of your portfolio (around 30%) in fixed income instruments is advisable for long-term wealth creation," says Deepak Aggarwal, chartered accountant and Delhi-based wealth advisor.