PPF update: Government may soon hike interest rates for Public Provident Fund, check details

Investors who have put their money into the Public Provident Fund (PPF) might be in for a pleasant surprise. Speculations suggest that the interest rates on PPF could be increased for the second quarter of the financial year 2023-24, spanning from July to September. The Finance Ministry is currently reviewing the interest rates of various small savings schemes, and an announcement is expected to be made soon.

Interestingly, the interest rates on PPF have remained unchanged since April 2020. Currently, PPF offers an annual interest rate of 7.1 percent. However, in the past three quarters, the central government has raised the interest rates on almost all small savings schemes, including the Sukanya Samriddhi Yojana.

From April to June, the interest rates of these savings schemes saw an increase ranging from 10 to 70 basis points. For instance, the National Saving Certificate (NSC) saw its interest rate rise from 7 percent to 7.70 percent. Similarly, the interest rate of the Sukanya Samriddhi Yojana was raised from 7.6 percent to 8 percent. Additionally, the Kisan Vikas Patra currently offers an annual interest rate of 7.5 percent, and its maturity period was reduced from 120 months to 115 months.

Despite these upward adjustments in interest rates for various savings schemes, the government has not made any changes to the interest rates of PPF. This is in contrast to the Reserve Bank of India (RBI) raising the repo rate by 2.50 in the past year, resulting in banks increasing their fixed deposit (FD) rates. Consequently, PPF investors are hopeful that the interest rates on their investments will also witness an increase.

The interest rates on PPF are determined by a formula established by the Finance Ministry in 2016. According to this formula, PPF should offer an interest rate that is 25 basis points higher than the 10-year bond yield. Currently, the bond yield stands at 7.3 percent, implying that PPF interest rates should be increased to 7.55 percent based on this formula.

Both urban and rural individuals in India often turn to savings schemes like PPF as a safe investment option. These schemes provide them with a sense of security, shielding them from the volatility of the stock market, while also offering tax-saving benefits. To maintain the popularity of PPF among the masses, there is mounting pressure on the government to raise the interest rates.

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