THERE HAS been a sharp decline over the last financial year in monthly receipts from small savings schemes, including in public provident funds, according to the latest RBI data.
In the first eight months of financial year 2017-18, receipts within small savings schemes amounted to Rs 40,429 crore, a seven-fold dip from Rs 2,75,682 crore in the corresponding period of the previous year.
The decline has not only been across deposits and savings certificates but also in public provident funds. In the eight-month period between April and November 2017, the total PPF receipts stood at Rs 1,775 crore, down from Rs 5,722 crore in the corresponding period of the previous year.
The decline in receipts has been in line with the growing attractiveness of mutual funds and the government decision to revise interest rates on small savings schemes on a quarterly basis beginning April 1, 2016, when it decided to align interest rates on several such schemes with government securities.
While interest rates on 1-5 year term deposits stood at 8.4 per cent in March 2016, they currently stand at 6.6 per cent for 1-year deposits and 7.4 per cent for a 5-year deposit. For National Savings Certificates, the interest offering has come down from 8.5 per cent to 7.6 per cent in the same period, whereas for Kisan Vikas Patra it is down from 8.7 per cent to 7.3 per cent. The interest rates on PPF have come down from 8.7 per cent in March 2016 to 7.6 per cent.
A senior official with the Department of Posts said the interest rate is one factor that is keeping investors away, but there are others, too.
“Equity market returns have been good over the last few years and mutual funds are attracting a lot of retail investors. Besides, there are some scheme-level issues that need to be addressed as in case of Sukanya Samriddhi Yojana, where the lock-in period is very high and interest rates have gone down,” said the official, who did not wish to be named.
Equity mutual funds have witnessed strong inflows from retail investors since May 2014. The pace of inflow has only increased over the last couple of years. Between April 2016 and March 2018, the net inflow into equity mutual funds amounted to Rs 2,15,749 crore.
Surya Bhatia, founder, Asset Managers, a Delhi-based financial advisory firm, said even the provision of TDS on post-office savings is leading to people moving out of these schemes.
“Mutual funds have become a big draw and the low interest offering on these schemes is not helping them. However, while income on post office schemes were earlier not subjected to TDS, the provision of TDS on the income from many of these schemes is dissuading investors,” said Bhatia.
Besides, the savings rate has been on a decline. It stood at a high of 36.8 per cent in the year ended March 2008 and declined to 32.3 per cent in 2014-15, but is now projected to be under 30 per cent for FY’18.