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									Now, earn up to 16.53% returns from public provident

MUMBAI: For investors battered by high inflation and flat returns from stocks and mutual funds, the
hike in interest rate on small saving schemes is a bonanza of sorts. The biggest gainers will be
account holders of public provident fund (PPF), which now comes with the double benefit of higher
interest    rate    (8.6%)    and     higher   annual      investment    limit   (Rs   1     lakh).

Experts say the hike in interest rate has made the PPFthe best option for conservative investors. If a
couple starts contributing Rs 1 lakh every year, they can together build a tax-free corpus of Rs 61.8
lakh over 15 years. However, this assumes the rate will remain steady at 8.6%, a very unlikely
scenario considering the rate is linked to the yield of government bonds. Analysts believe the interest
rate cycle is close to peaking out and rates could go down in the coming months (see table).

The raising of the annual limit from Rs 70,000 to Rs 1 lakh will benefit investors looking to park money
in tax-free avenues. The Rs 2,580 interest earned on the additional investment of Rs 30,000 will
escape the tax net every year. What's more, if the investor claims tax benefits under Section 80C, his
effective           return            will         be             close             to          16.53%.

The revised rates for small savings are only for this fiscal and the new rates will be announced at the
beginning of every financial year. If the PPF rate is 8.6% in the first year but subsequently drops to
7.6%, the corpus at the end of 15 years would be smaller by about Rs 97,500 than what it would earn
under the 8% offered till now. "If you want to make the most of your PPF account, be disciplined and
contribute every year and do not take loans from the account," says Sumeet Vaid, founder,
Freedom Financial                                                                            Planners.

"After the initial 15 years, one can keep extending the deposit for 5 years at a time," he adds. While
the PPF has become more attractive, the new improved NSC with an interest rate of 8.4% but a
reduced tenure of five years may not find favour with many investors. Banks are offering up to 9-9.5%
on 5-year tax savings fixed deposits.The State Bank of India offers 9.25% on such deposits. Similarly,
fixed deposit and savings bank accounts of the post office, despite the increased rates, are not
attractive because banks offer better rates. Besides, it is easier to withdraw money from a bank,
thanks to ATMs and their wider reach.

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