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Possible interest rate hike for deposits in PPF

Just a week after the interest rate on deposits to the employees’ provident fund was slashed by 1.25 per cent for 2011-12, the government is set to hike the rate of interest on small saving instruments like the Public Provident Fund (PPF) starting April 1.

Consequently, deposits to the PPF are expected to earn an interest of near 9 per cent as against the prevailing rate of 8.6 per cent. The interest rate on other small saving instruments like the National Savings Certificate and postal deposits are also expected to be hiked from April 1.

The move comes after the Shyamala Gopinath committee on the National Small Savings Fund suggested that interest rates on small savings should be aligned to interest rates on government securities. The finance ministry is expected to notify the new interest rates for every financial year will be notified before April 1.

The finance ministry had hiked the interest rate on deposits to the PPF to 8.6 per cent from December last year, as against the earlier rate of interest of 8 per cent. With the higher interest rate, small saving instruments like postal deposits and PPF are expected to become popular once again. Many investors had moved away to more attractive and equally risk averse avenues of investment like fixed deposits and EPF that provided higher returns.

While the EPF was providing an interest rate of 8.5 to 9.5 per cent over the last few years, bank deposits were giving returns of over 9 per cent. But now the rate of interest on deposits to the EPF has been reduced to 8.25 per cent. Fixed deposits are likely to give lower returns in 2012-13 with the RBI expected to cut key rates

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