Investment in Postal TD and PPF Schemes increasing

Investment in Postal TD and PPF Schemes increasing

Though stocks made a comeback in 2009 by growing almost 100 per cent .Since March, investors continued to find value in the fixed asset classes like bank fixed deposits (FDs), post office schemes and national savings certificates. Interest rates in the first quarter of the calendar year 2009 (January-March) were at their highest in three years.While banks offered interest rates in the range of 9.25 per cent to 10.5 per cent to attract deposits, post office schemes and NSCs have been offering in excess of 8 per cent compounded annually. Banks such as SBI and others were attracting close to Rs 1,000 crore a day as deposits since retail and corporate investors found these safe havens most rewarding.According to a senior SBI official, the interest rates offered last year by banks made many investors withdraw money from mutual funds and invest in bank FDs to earn guaranteed returns. “Investors put money in bank FDs for three reasons — investments, transactional requirement and safety. Over the last year, people have considered FDs for safety and transactional requirements,” the official said. The savings rate for Indian households fell in 2008 and early 2009 as stocks crashed and liquidity was hard to find.According to RBI data, in the first four months of 2009-10, more than Rs 2,30,000 crore deposits were collected, which forms 35 per cent of the deposits collected in 2008-09. NBFCs too witnessed a surge in deposits. But as stock markets bounced back and the system was flush with liquidity, interest rates on deposits fell by 350-400 basis points from January.Assured return schemes have suddenly emerged the most sought after among investors. This is not surprising given the huge losses that investors suffered in last year’s stock market crash, properties, derivatives and certain fixed income products; pushing investors to safer options.Public Provident Fund is a 15-year scheme and requires annual subscription to keep the account active. The amount deposited and interest earned is completely exempted from income tax. According to data collected by India Post, there has been an incremental growth in both the number of accounts opened by people under PPF and ticket size of amount kept in it. According to the postal department, over Rs 23,401 crore were invested by people in 22.09 lakh PPF accounts as on March 31, 2009.Post office term deposits are fixed deposits that can be made in multiples of Rs 200 with no upper limit. The investments can be made for 1 year, 2 years, 3 years or 5 years, but only investments in 5-year deposits are eligible for tax benefits. A senior official from India Post, on condition of anonymity, said around 22.07 crore accounts were opened under the various post office schemes and PPF through all the centres across India up to September 2009. This shows an incremental rise of 2 crore accounts being added in just six months from March to September.“These schemes (various POS and PPF) though offer a tad lower interest rates have sovereign guarantee and people are in for steady interest rates than the fluctuating ones where they stand to lose in longterm,” he said.According to the official, during uncertain times, these types of schemes will continue to do well. The period starting October is expected to be very good for all schemes as that is the time when people start thinking about annual investments.