In a strategic move ahead of the upcoming Lok Sabha polls in 2024, the Narendra Modi government has increased the interest rates on the Sukanya Samriddhi Yojana (SSY) scheme. The Finance Ministry’s recent circular announced a 20 basis points hike for the January-March quarter, elevating the interest rate from 8% to 8.2%.
Table of Contents
Benefits of Sukanya Samriddhi Yojana
Guaranteed Returns: Being a government-backed scheme, SSY ensures stable and assured returns for investors.
Tax Benefits: Investors can claim income tax benefits on contributions up to ₹1.50 lakh in a financial year under Section 80C of the Income Tax Act.
Flexible Contributions: The scheme allows a minimum annual contribution of ₹250 and a maximum of ₹1.5 lakh in a financial year.
Withdrawal and Maturity Rules
Upon reaching 18 years of age, guardians can withdraw up to 50% of the account balance in a financial year. Withdrawals can be made in a single transaction or installments, with a maximum of one withdrawal per year, up to a limit of 5 years.
Small Savings Schemes Interest Rates Overview
The government has not only raised the interest rates for Sukanya Samriddhi Yojana but also increased the three-year term deposit scheme by 10 basis points. Here are the latest interest rates for various small savings schemes in the January-March 2024 quarter:
PPF: 7.1%
SCSS: 8.2%
Sukanya Yojana: 8.2%
NSC: 7.7%
PO-Monthly Income Scheme: 7.4%
Kisan Vikas Patra: 7.5%
1-Year Deposit: 6.9%
2-Year Deposit: 7.0%
3-Year Deposit: 7.1%
5-Year Deposit: 7.5%
5-Year RD: 6.7%
Speculation on Future Interest Rate Revisions
With several small savings schemes’ interest rates set for revision at the end of the month, questions arise about potential changes. The government typically reviews these rates every quarter, and the current rates are set to expire on December 30, 2023.
Benefits of Investing in Small Savings Schemes
Stable Returns: Small savings schemes offer stable and predictable returns, making them ideal for conservative investors.
Government Backing: These schemes are government-backed and virtually risk-free.
Tax Deductions: Individuals can claim deductions of up to ₹1.5 lakh per year under Section 80C by investing in schemes like PPF, SCSS, NSC, SSY, and the 5-Year Post Office Time Deposit.
Relaxation in Norms
A recent gazette notification dated November 9 has relaxed norms for various small savings schemes, including PPF, Senior Citizen’s Savings Scheme, and Time Deposit Scheme.
Interest Rate Calculation and Speculation
Interest rates for small savings schemes are linked to the yields of 10-year government securities. The interest rate on PPF, for instance, is calculated with a spread of 25 basis points over the benchmarked yield of the preceding three months. While the formula suggests a higher rate, the government has not revised the PPF rate since April 2020.
Experts speculate on the likelihood of a PPF rate hike during the January-March quarter. Despite the formula indicating an increase, factors like recent trends in the 10-year G-Sec yield and the upcoming elections may influence the government’s decision.
The recent hike in Sukanya Samriddhi Yojana’s interest rate signals potential changes in other small savings schemes. Investors await the government’s decision on the revision of interest rates, especially for schemes like PPF, which has remained unchanged for an extended period.
