Public Provident Fund interest rate: The small savings schemes’ interest rates are due for revision today, June 30, 2023. At this time, investors are wondering whether the PM Modi-led central government will hike the interest rate of the Public Provident Fund (PPF) in the July-September quarter as the PPF interest rate has not been increased since April 2020. Currently, PPF offers a 7.1 per cent interest rate.
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However, the interest rates of various other small savings schemes including Senior Citizen Savings Schemes (SCSS), National Savings Certificate (NSC), and Sukanya Samriddhi Yojana (SSY) have been increased in the last two quarters. The Reserve Bank of India (RBI) had raised the repo rate by 2.5 per cent since May last year.
Given the circumstances, the investors are hoping that the government may hike the interest rate of PPF during the upcoming July-September quarter review.
PPF account: Interest rate, term, maturity, and other benefits
PPF accounts can be opened in any PSU or private bank. The minimum deposit is Rs 500 and the maximum deposit is Rs 1,50,000 in a Financial year. It has a maturity period of 15 years. After maturity, the PPF account can be extended for any number for a block of 5 years with further deposits and the deposit qualifies for deduction under Section 80-C of the IT Act.
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PPF interest rate calculator: How it is calculated?
You need to understand how the PPF interest rate is calculated, to know whether there will be a hike in PPF interest during the July-September quarter.
The interest rates of small savings schemes are linked to yields of 10-year Government Securities in the secondary market. There are set formulae for mark-ups over the previous three months’ average yield of relevant G-Secs of comparable maturity, as per ET report.
The central government reviews the interest rates of small savings schemes every quarter based on the G-Secs yields of the previous three months. This is in line with the recommendations of the Shyamala Gopinath Committee, 2011 to ensure that the interest rates of small savings schemes are market-linked.
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PPF interest rate: Will the govt hike PPF interest rate in the July-September quarter of 2023?
According to the formula notified by the Finance Ministry in 2016, as cited by ET, PPF has a spread of 25 basis points over the benchmark yield. The benchmark 10-year bond yield has averaged 7.3 per cent from March to May 2023, according to data from investing.com.
According to the formula, the interest rate of PPF will be 25 basis points higher than the average 10-year G-sec yield of the corresponding maturity. So going strictly by this process, the PPF rate should ideally be 7.55per cent.
However, there has been a gradual decline in the benchmark yield which has raised doubts on the probability of the increase of the PPF interest rate.“PPF typically follows the benchmark ten-year G-Sec yield in the secondary market for the last quarter. During the January-March quarter, this yield was in the range of 7.3-7.5 per cent. It further declined to the 7-7.1 per cent range in the April-June quarter. Given the 25 basis points fall in the benchmark, it is unlikely that we will see any hike in the PPF interest rates in the upcoming review,” said Anshul Gupta, Co-founder and Chief Investment Officer, of Wint Wealth, an online investment platform, while speaking to ET.
