Tuesday, February 3, 2009

PPF Rate must be hiked

PPF Interest Rate should be hiked

Dr P Vyasamoorthy

 

Public Provident Fund has been a favorite long term investment opportunity for a long time.

There are several advantages like flexibility in the sum being invested in a year, loans and withdrawals and security. Except that there is five year "lock in" period other aspects like: nomination, change from one branch to another, extension beyond 15 years in blocks of five years are all very attractive. Tax benefits under Section 88 and the interest income earned being exempted fully from taxation are the most attractive features. The principal and interest earned are exempt from wealth tax too.

 

However the government started this scheme with an attractive annual interest rate of 12%. Then they have slowly reduced it and it is just 8% since 2002. At present there are a good number of Fixed Deposit Schemes both in Private as well as in public sector banks that offer 11% to 12% interest in the case of senior citizens. There is no reason why the government can not increase the interest rates for PPF. Hard earned income over several years, saved in PPF after making a lot of sacrifices, would have grown to sizable sums at the end of 15 or more years. When senior citizens need money most and there are no avenues to earn, whatever savings they have made should get reasonable returns.

 

Another aspect that the maximum sum eligible to be deposited in a year is pegged at Rs 70000/-.  This figure needs to be raised to One Lakh.

 

Similarly Post Office Term Deposits yield meager Interest Rates of 7.5% only. Bonus given at the end of the term has been removed. Agents are denied any commission. This is no way to promote savings or help citizens. Senior citizens who value security are interested in Post Office Term deposits in spite of operations problems like poor service and long queues. However they shun postal deposit schemes as the yield is incommensurate with the times.

 

The government must be urged strongly to hike the interest rates in the next financial year.

 

 

 

 

 

 

1 comment:

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