Wednesday, 21 March 2012

Changes in Interest rate of P.F & Small Savings

Recently the investors and employees are confused with a few changes in the interest rate of EPF (Employees Provident Fund) , GPF (General Provident Fund), NSC (National Savings Certificate), PPF (Public Provident Fund) and other Small Saving Investments. EPF is mainly for private sector employees. PF contribution from the salary of private employees with the management contribution deposits in EPFO (Employees Provident Fund Organization). GPF is for Government employees. A few recent  declarations make some changes in interest rate of these investments.

Just one day before the union budget the interest rate of EPF account has been reduced from 9.5% to 8.25% for the financial year 2011-12. There is no any reason told for this declaration. There are no any changes in interest rate in bank deposits. A few months before the finance ministry increased interest rate of small savings such as NSC and PPF. But here a reduction in interest rate without any reason is being told. Earlier the interest rate of EPF was 8.5% and the last year it has been increased to 9.5% (1% increase) but now a 1.25% reduction in interest rate and this decision affected around 4.7 crore subscribers.

Another declaration of rise in interest rate of GPF (General Provident Fund), the provident fund of government employees, increased from 8% to 8.6% through a resolution (F.NO. 5(1)-B(PD)/2011) dated 19th March, 2012 ) by the Department of Economic Affairs, Ministry of Finance. The resolution says that interest rate of GPF and other similar funds shall have an interest rate of 8% from 01st April, 2011 to 30th November, 2011 and 8.6% interest rate from 01st December, 2011. The subscribers of the following funds will get this benefit.

The General Provident Fund (Central Services).
The Contributory Provident Fund (India).
The All India Services Provident Fund.
The State Railway Provident Fund.
The General Provident Fund (Defence Services).
The Indian Ordnance Department Provident Fund.
The Indian Ordnance Factories Workmen’s Provident Fund.
The Indian Naval Dockyard Workmen’s Provident Fund.
The Defence Services Officers Provident Fund.
The Armed Forces Personnel Provident Fund.

Today we have noticed news in all dailies for increase in interest rate of PPF & other small saving investments. The government of India is raising interest rate on small saving schemes such as NSC and post office deposits by 20-25 basis points. But the new increased rate will be applicable only from 01st April, 2012. With this increase the investors of NSC and PPF will get an increase of interest rate to 8.8 or 8.9% interest and the existing rate is 8.6% per year.

It seems that bank fixed deposit gets more interest than these small savings and voluntary deposit schemes. Banks give around 9% interest and more for a fixed deposit for 366 days or more. These small saving schemes have a minimum lock in period under certain conditions. But the interest of PF & PPF is tax free and when considered the tax factor these investments get more than bank fixed deposits. These small savings schemes are also attractive with its tax saving nature. An individual with high tax slab can earn more from these small saving schemes.

Changes in Interest rate of P.F & Small Savings Schemes

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