Find out in the ET Wealth RICS report
Updated: Dec 16, 2016, 05.37 PM IST | Economic Times
ET Wealth Survey Series is an effort to bridge the gap between industry, marketers and consumers. It is a well-researched effort to identify the vacuum that exists in the consumer personal finance space. With ET Wealth Surveys, we want you to know better how your audience earns, spends, invests and saves.
Of the universe of 156 million urban internet users, given here is the estimated size of each investment product:
Jignesh Shah – Capital Advisors | Jun 28, 2016, 09.36 AM | Source: Moneycontrol.com
How the PPF and ELSS score on various parameters. Here is how you can take an informed decision.
Recently one of my clients asked me – with 2.5% loss in Sensex over last one year, why not avoid tax saving mutual funds and instead go for investment in public provident fund? He has a point when we look at negative returns by stocks. But just one bad year, does not make tax saving funds a bad investment choice. There is much more one should ponder over before taking a decision.
Public provident fund (PPF) and tax saving funds (ELSS) are different products – former is fixed income instrument and the latter is an investment in stocks. ELSS can be a volatile journey and may not suit risk averse investors. However, it comes with the combination of two big advantages – lock in of just three years and a possibility of returns in excess of inflation.
PPF offers tax free assured returns in long term. But the returns may not remain attractive. The interest rate may drop below 8% given the falling interest rate regime we are into.
While some investors may want to include both these options in their portfolio, it makes sense to delve deeper into each one of them before you invest.
PPF – It is a scheme issued by the Government of India under the PPF Act of 1968. It is a fixed income security scheme that enables one to invest a minimum amount of Rs.500 and a maximum of Rs.150,000 per annum. PPF account matures after 15 years. So, the lock-in period for PPF investment reduces every year. Compared to this, with ELSS, every investment is subject to a fresh lock-in of three years.
Returns are not fixed. Interest rate for the year is notified by Ministry of Finance, Government of India. Interest rate for FY2016 is 8.7% p.a. and 8.1% for qtr ended Jun 2016, which is excellent for a debt product.
Individuals who are residents of India can ONLY open an account under the scheme. Only one PPF account can be maintained by an Individual, except an account that is opened on behalf of a minor. Thus, PPF account can also be opened by either parent under the name of a minor. However, each person is eligible for only one account under his/her name. Mother and father both cannot open Public Provident Fund (PPF) accounts on behalf of the same minor. Thus, in case a couple has two children, they can maximum open four accounts i.e. two in their own accounts and two in the name of their children under guardianship of either of the parent. Also, non-resident Indians (NRIs) are NOT eligible to open an account. However a resident who becomes an NRI during the tenure prescribed under Public Provident Fund Scheme, may continue to subscribe to the fund until its maturity on a non-repatriation basis. However, such an account will not be eligible for extension of five years at the time of maturity, if at the time of maturity, an account holder is an NRI. Since 13th May, 2005, Hindu Undivided Family can NOT open an account under the scheme. However, accounts opened prior to that date may continue subscription to their account till maturity. They also can not extend the account any further, after this date.
One can have guaranteed and tax free returns by investing in a PPF account. Currently, deposits under PPF earn interest of 8.10% per annum. PPF investments are tax deductible, along with the fact, that the returns are completely, tax free. The lock in period of the PPF scheme is as long as fifteen years and can be extended in block of five years after maturity. Partial withdrawals can be made on the commencement of the seventh year.
Since, the return in PPF is guaranteed and is backed by the government, there is low risk associated with repayment. However, any investor who parks too much money in fixed-income assets can face other types of risk such as inflation risk. A high rate of inflation would erode the value of your savings. There is an issue of liquidity too – should the investor need the money for some emergency it would be difficult since the PPF has a lock-in period of 15 years
Other Features –
1. Premature withdrawal of funds – PPFs give a hard time when it comes to withdrawing investments before the maturity of 15 years is done. Partial withdrawals are permitted from the seventh year.
2. Loans – Having lock-in periods of 15 years and being stable financial instruments, from the third year, PPFs can easily be used as collaterals for availing loans for vehicles, housing and other secured loans.
3. Investment Security – Provided by the Government of India, PPFs offer rates that rarely change in a major way and are one of the safest possible investments one can make in India.
After initial maturity of 15 years, you can extend your PPF account in block of 5 years.
PPF falls in Exempt-Exempt-Exempt (EEE) category. Interest earned and the maturity amount is exempt from income tax.
Now, let us look at ELSS –
Equity Linked Savings Scheme (ELSS), is an instrument of savings and investment managed by many mutual funds. It is a diversified equity mutual fund. A minimum investment of Rs.500 is required and it has no cap on the maximum investment. It has a mandatory lock-in period of 3 years, after which all the investment and the returns can be withdrawn. These investments offer tax free returns as long term capital gains on equity funds are tax free. dividend on equity based mutual fund is exempt from dividend distribution tax as well. Being equity market linked investments, these have a higher risk, but also present a better case of gaining more returns than any other savings scheme that relies on fixed income instruments.
Other Features –
1. Premature withdrawal of funds – Premature withdrawal of funds from ELSS investments is not allowed – not until the lock-in period of 3 years is over.
2. Loans – Equity Linked Savings Scheme investments are market dependent instruments and can only be used as collaterals for availing loans for vehicles, housing and other secured loans after the lock-in periods are over. Better rates can be availed on loans, if investments are pledged with banks that offer the particular ELSS schemes
3. Comparison of risk and returns –
Should you invest in PPF or ELSS?
Your investment choice should be guided by your investment objectives and your risk tolerance level and liquidity requirements. Investors with high risk tolerance should invest in ELSS, while investors with low risk tolerance should invest in PPF. Over a long time frame, wealth creation potential is much higher with ELSS. Young investors should opt for ELSS, since they usually have high risk tolerance and a sufficiently long time horizon to ride out the volatilities associated with equity investments. As you approach retirement, your risk tolerance goes down and PPF is a better investment option in such a situation. Investors with moderate risk tolerance level can invest in both PPF and ELSS in accordance with their optimal asset allocation strategy.
Salaried individuals are mandatorily required to contribute a portion of their salary to employee provident fund (EPF). The EPF interest rate is similar to the PPF interest rate and the maturity amount is tax free. The EPF contribution of the employee as well as PPF and ELSS investments goes towards the section 80C tax savings. If you are not a salaried individual and looking for some safe fixed income saving option, PPF can be considered.
Returns –ELSS is expected to offer better returns than PPF in long term. Currently, average 5 year compounded return for ELSS schemes is 13.31% pa and average 10 year compounded return for ELSS schemes is 12.86% pa. This is far better than PPF rate of return of more than 8%.
Risks – Over longer term, volatility (price risk) reduces significantly, in equity instruments. There is little risk of capital in PPF, as it is backed by Central Government of India.
When investing, investors must also consider shortfall risk. This is the risk that an investment’s actual return will not be sufficient to generate the money needed to meet one’s investment goals. That is why equity is so crucial in an investor’s portfolio because good equity investments over the long term do provide returns which outpace inflation. According to inflation.eu, the average CPI in India over the past 10 years has fluctuated in wide range of 5.7% (2016) to 12.11% (2010).
If investors invested all their money in fixed return investments like PPF, there is a very high probability that they would not save sufficiently for retirement, unless they were earning obscene amounts of money.
Also, the return in PPF has declined over the years. From 12% at the turn of the century, it dropped down to 11%, then 9.5%, 9% and finally 8%+ where is languished for many years. Between FY12 and FY15 the rate hovered between 8.6% and 8.7%. If you take the average inflation by year, the CPI from 2008 to 2013 has fluctuated between 8.32% and 12.11%. All in all, the PPF has not done an excellent job in consistently beating inflation over the last few years. You need some equity to create wealth.
To sum up, if you are willing to take up some risk go with an ELSS, otherwise it is the good old PPF makes a better bet.
Source : http://goo.gl/30NIYP
Babar Zaidi | TNN | Jun 13, 2016, 06.53 AM IST | Times of India
NEW DELHI: The first time Arjun Amlani used an online calculator to assess his retirement needs, he was shocked. The Mumbai-based finance professional, whose gross income was around Rs 10 lakh a year then, needed more than Rs 8 crore to fund his retirement needs. “The eight-digit number was too scary,” he says.
Figures thrown up by excel sheets and online retirement calculators can be intimidating. Here’s an example: if your current monthly expenses are Rs 60,000, even a conservative inflation rate of 7% will push up that requirement to over Rs 4.6 lakh in 30 years. To sustain those expenses for 20 years in retirement, you need a corpus of Rs 9 crore. To some investors, such enormous figures seem so unattainable that they just stop bothering about retirement. That’s a mistake.Retirement cannot be wished away. The paycheques will stop coming, and your living expenses won’t end but keep rising due to inflation. Worse, critical expenses like healthcare will be growing faster than overall inflation. The sooner you start saving for that phase of life, the more comfortable retirement will be.
The big question is: how can one build a nine-figure nest egg when the monthly surplus is Rs 15,000-20,000? Mutual fund sellers claim that an SIP of Rs 15,000 can grow to Rs 10 crore in 30 years. But this calculation assumes compounded annual returns of 15% for the next 30 years.It’s not advisable to base your retirement plan on such over-optimistic assumptions. Life insurance agents will offer plans that will give you an assured sum on retirement. But the returns they will generate are too low and the amount required will be too high. An endowment policy that gives Rs 10 crore after 30 years will have an annual premium of roughly Rs 12 lakh — or Rs 1 lakh per month.
Increasing the investment
When Amlani used the calculator, his monthly income was around Rs 85,000 and he needed to invest almost 20% of this for his retirement. A year later, his income has gone up and so have expectations. The calculator now says he needs to save over Rs 10 crore in the next 27 years, but Amlani is not worried. If he continues putting money in his PF, PPF and equity funds as planned, it won’t be difficult for him to reach the target.
All Amlani has to do is increase the quantum of investment every year. If a 30-year-old with a monthly salary of Rs 50,000 starts saving 10% (Rs 5,000) for his retirement every month in an option that earns 9% per year, he will accumulate Rs 92 lakh by the time he is 60. But if he raises his investment by 10% every year (in line with assumed increase in income), he would have saved Rs 2.76 crore.
It’s surprising that not many investors follow this simple strategy even though their income rises every year.Sure, the annual increment in salary is nullified to some extent by the increase in cost of living. Yet, even when there is a marked increase in investible surplus, people don’t match investments with the increase in income. The silver lining is that contributions to the Provident Fund are linked to income and automatically increase after every annual increment.
The right investment mix
We looked at three types of investors: risk-averse individuals who stay away from equities, moderate investors who have some exposure to stocks and aggressive investors who are willing to take risks. Each starts with a monthly investment of Rs 15,000 spread across different retirement saving options, and increases the investment amount by 10% every year. Unfortunately for the risk-averse investor, his nest egg is considerably smaller than those of the moderate and aggressive investors.
This is because apart from PF and investments in small savings schemes, he has invested in low-yield life insurance policies and pension plans. Life insurance policies offer assured returns and a tax-free corpus. But the returns are very low–even a long-term plan of 25-30 years will not be able to generate more than 6-7%. Pension plans from life insurance companies are also high-cost instruments. While this shows that equity investments are critical for a long-term goal, the other two haven’t taken too much risk either.
The equity exposure of the moderate investor does not exceed 53% while the aggressive investor has a marginally higher allocation to stocks. The moderate investor comes close to the Rs 10-crore mark, while the aggressive investor manages to reach the nine digit figure.
Investing discipline needed
The big problem, however, is the lack of investing discipline. Though our calculations do not allocate too much to equity, we have assumed regular investments for 30 years. In reality, data from AMFI shows small investors withdraw 47% of investments in equity funds and 54% of investments in non-equity funds within two years. In fact, 27% of equity fund investments are withdrawn within a year. “Small investors just don’t have the patience or the long-term vision required to make money from equity investments,” says a senior fund manager. It’s futile to imagine a nest egg of Rs 10 crore if your investment term is only 1-2 years.
The trajectory of equity investments is never a straight line. It will have ups and down, which is an inherent feature of this asset class. However, in the long-term, these investments will prove more rewarding than fixed income options. Although equity funds have churned out much higher returns in the past 15 years, we have assumed a conservative 12% returns from equity investments.
Source : http://goo.gl/qYLTb0
PF withdrawal norms dropped: There could be good reasons to keep your money with the EPFO unless you need it for a specific purpose and you have no alternative sources to meet those expenses.
By: Sarbajeet K Sen | Updated: April 20, 2016 5:25 PM | Indian Express
Employee Provident Fund members may have won the battle against the government’s move to impose restrictions on EPF withdrawal, but should they rush to take out the money if eligible to do so?
There could be good reasons to keep your money with the fund unless you need it for a specific purpose and you have no alternative sources to meet those expenses.
Here are a few reasons why you should consider staying invested in with the Employee’s Provident Fund Organisation (EPFO).
Provides old-age income security: The main purpose of contributions to EPF is to create a corpus for the golden years of the members. The corpus created through compulsory savings should be looked at as a fund that would provide financial security at old age. It should not be withdrawn unless for specified emergency purposes. Besides, there is provision for pension and insurance under EPFO.
High rate of interest: EPFO has set the interest rate for 2015-16 at 8.8 per cent, which makes it one of the most lucrative fixed-income savings instruments. This is even better than Public Provident Fund (PPF) which now gives an annual interest of 8.1 per cent. Hence, financial advisors often suggest voluntary increase in EPF contributions from the employee side beyond the mandatory 12 per cent of basic.
Compounding for more years builds large corpus: With the money being compounded at a healthy interest rate the fund can help generate a corpus at retirement can be substantial. A quick calculation shows that an average monthly contribution of Rs 5000 for 30 years at 8.8 per ent compounded annually will create a corpus of Rs 82.35 lakhs after 30 years. However, if the same it withdrawn after 25 years, you will get around Rs 54 lakhs and over 20 years the corpus will be substantially lower at Rs 32 lakhs.
Provides tax-free returns: EPF enjoys Exempt, Exempt, Exempt (EEE) status and hence it is not taxed throughout its life including contribution, accumulation and withdrawal. If tax-saving is factored in, the 8.8 per cent interest rate works out effectively to nearly 12.5 per cent interest if you are in the 30 per cent tax bracket. However, if you withdraw the corpus before completing five years as member and the amount is over Rs 30,000, you will have to pay tax as per your income slab.
Interest paid even in dormant accounts: The government has recently taken a decision to resume paying interest on ‘dormant’ EPF accounts. Earlier, if your money with EPFO had no contributions for over 36 months it was being categorized as ‘dormant’ and no interest was paid on it. That was a good reason to withdraw the money and invest it to other productive avenues. Not any longer. You can now retain the accumulation and earn healthy interest till retirement.
Source : http://goo.gl/mKmSU7
Don’t tinker with your long-term investment plan. But it is always better to make some critical changes, based on new tax laws and instruments
Sanjay Kumar Singh | April 3, 2016 Last Updated at 22:10 IST | Business Standard
The start of a new financial year is a good time to review your financial plan and take stock of where you stand in relation to your goals. If new goals have emerged, this is the time to make fresh investments for these. While having a steady approach is a virtue here, make some adjustments in the light of developments that have occurred over the past year.
Large-cap funds have fared worse than mid-cap and small-cap ones over the past one year (see table). Over this period at least, the conventional wisdom that large-cap funds tend to be more resilient than mid-cap and small-cap ones in a declining market was overturned. Nilesh Shah, managing director, Kotak Mahindra AMC, offers three reasons. “For the bulk of the previous year, FIIs were sellers of large-cap stocks, whereas domestic institutional investors (DIIs) were buyers of mid- and small-caps. Large-cap stocks are also more linked to global sectors like metal and oil, whereas mid- and small-caps are linked to domestic sectors. The latter has done better than the former, leading to stronger performance by mid- and small-cap stocks. Large-cap stocks’ earning growth decelerated or remained subdued throughout last year while mid- and small-caps delivered better growth,” he says.
Despite last year’s anomalous performance, investors should continue to have the bulk of their core portfolio, 70-75 per cent, in large-cap funds for stability, and only 20-25 per cent in mid-cap and small-cap funds. Large-caps could also fare better in the near future. Says Ashish Shankar, head of investment advisory, Motilal Oswal Private Wealth Management: “IT, pharma and private banks, whose earnings have been growing, will continue to do so. Public sector banks and commodity companies, whose earnings have been bleeding, will not bleed as much. Many might even turn profitable. FII flows turned positive this month and FIIs prefer large-caps. With the US Fed saying it won’t hike interest rates aggressively, global liquidity should improve. If FII flows continue to be stable, large-caps should do better.” Valuations of large-caps are also more attractive.
Among debt funds, the category average return of income funds and dynamic bond funds was lower than that of short-term, ultra short-term and liquid funds (see table). Explains Shah: “Last year, while Reserve Bank of India (RBI) cut policy rates, market yields didn’t soften as much. The yield curve became steeper. The short end of the curve came down more than the long end, which is why shorter-term bonds did better than longer-term gilts.”
Stick to funds that invest in high-quality debt paper, in view of the worsening credit environment. Shankar suggests investing in triple ‘A’ corporate bond funds. “Today, you can build a triple ‘A’ corporate bond portfolio with an expected return of 8.5 per cent. Many of these have expense ratios of 40-50 basis points, so you can expect annual return of around eight per cent. If bond yields come down, you could end up with returns of 8.5-9 per cent. If you redeem in April 2019, you will get three indexation benefits, lowering the tax incidence considerably.” Investors who have invested in dynamic bond funds should hold on to these. “A rate cut is expected in April. Yields will drop and there may be a rally in the bond market,” says Arvind Rao, Certified Financial Planner (CFP), Arvind Rao Associates.
CHANGES YOU NEED TO MAKE
- Fixed deposit rates from banks will be better than returns from the post office deposits in the new financial year
- Choose your tenure first and then, do a comparison of bank fixed deposit rates before making the final choice
- Invest in the yellow metal via gold bonds
- If your liabilities have increased, revise term cover upward
- Revise health cover every three-five years to deal with medical and lifestyle inflation
- Revise sum assured on home insurance if you have added to household assets
- Conservative investors should invest in PPF at the earliest
- Those who can take some risk should bet on ELSS funds via SIP
- Invest Rs 50,000 in NPS
Traditional fixed income
The recent cut in small savings has jolted conservative investors. The rates on these have been linked to the average 10-year bond yield for the past three months. These will be revised every quarter now, make them more volatile. “People who want to invest in debt and want sovereign security should continue to invest in Public Provident Fund (PPF). No other instrument gives a tax-free return of 8.1 per cent with government security,” says Rao.
As for time deposits, financial planner Arnav Pandya suggests, “From April, fixed deposits of banks will give better returns than those of the post office. Decide on your investment tenure, see which bank is offering the best rate for that tenure, and invest in its deposit.” Lock into current rates fast, as even banks are expected to cut their deposit rates.
Tax-free bonds are another good option. Nabard’s recent issue carried a coupon of 7.29 per cent for 10 years and 7.64 per cent for 15 years. Beside getting tax-free income, investors stand to get the benefit of capital appreciation if interest rates are cut.
“People who have some risk appetite may also look at debt mutual funds and fixed deposits of stable companies,” adds Rao.
The sharp run-up in gold prices over three months, owing to the rise in risk aversion globally, took most people by surprise. The sudden spurt emphasises the need to stay diversified and have a 10 per cent allocation to the yellow metal in your portfolio. However, instead of using gold Exchange-traded funds (ETFs), which carry an expense ratio of 0.75-1 per cent, invest via gold bonds, which offer an annual interest rate of 2.75 per cent. The Budget made gold bonds more attractive by exempting these from capital gains tax at redemption.
Start investing in tax-saving instruments from the beginning of the year. “Don’t leave tax planning for the end of the year, otherwise you may have to scramble for funds,” says financial planner Ankur Kapur of ankurkapur.in. For those with the money, Pandya suggests: “Invest the entire amount you need to in PPF before the April 5. That will take care of tax planning for the year and you will also earn interest on your investment.”
Investors with a higher risk appetite could start a Systematic Investment Plan (SIP) in an Equity Linked Savings Schemes (ELSS) fund, which can give higher returns. “If you invest early in the year via an SIP, you will reap the benefit of rupee cost averaging,” says Dinesh Rohira, founder and Chief Executive Officer, 5nance.com. Pankaj Mathpal, MD, Optima Money Managers suggests linking all tax-related investments to financial goals.
If you live in your parents’ house and pay rent to them to claim House Rent Allowance benefits, which is perfectly legal, get a rent agreement prepared.
With 40 per cent of the National Pension System (NPS) corpus having been made tax-free at withdrawal in this Budget (the entire corpus was taxed earlier), this has become more attractive. “Open an NPS account if you have not done so already and enjoy the additional tax deduction of Rs 50,000,” says Anil Rego, CEO & founder, Right Horizons. In view of the low returns from annuities, into which 60 per cent of the final corpus must be compulsorily invested, don’t invest more than Rs 50,000.
Tax deduction under Section 24 is available on the interest repaid on a home loan. “Buying a property to avail of the benefit is not advisable if the family has a primary residence,” says Rego.
While reviewing your financial plan, check if the term cover is adequate. A family’s insurance cover should be able to replace the breadwinner’s income stream. Financial planners take into account household expenses, goals like children’s education and marriage, and liabilities like home loans when deciding on a person’s insurance requirement. “If goals have changed or liabilities have increased, raise the amount of cover,” suggests Mathpal. Kapur says the premium rate is likely to be lower if you buy the term plan before your birthday.
Your health insurance cover might also need to be raised to take care of medical inflation. The same holds true for household insurance if you have reconstructed your house and the structure has become more expensive, or if you have added expensive assets. Rohira suggests buying add-on covers like accidental insurance and critical health insurance for comprehensive protection.
Bindisha Sarang | Apr 4, 2016 10:49 IST | First Post
Public Provident Fund (PPF) gives you tax free returns of 8.1%. But, did you know the returns can be more from your PPF account if invested at the right time? Read on.
PPF account allows you to invest Rs 1.5 lakh ever year. And, thanks to Sec 80 C, the returns are tax free. While the interest on the PPF account balance is compounded annually, the interest calculation, however, is done every month. The interest is calculated on the lowest balance in your account between 5th and the last day of the month.
What does this mean? Simply put, if you deposit the amount after 5th, you miss earning interest for that particular month.
So, the smart thing to do is to make the most of your PPF account by putting money on or before the 5th of every month.
Even better, in case you have idle money at your disposal, a single deposit of Rs 1.5 lakh can be put into your PPF account before 5 April, right at the start of the new financial year, to earn interest for the whole year.
But if you don’t have that kind of lump sum money, make sure you make a a monthly investment before the 5th of every month. Of course, the minimum you can invest in PPF is Rs 500 a month.
Source : http://goo.gl/R8Gmoy
TNN | Mar 19, 2016, 02.46 AM IST | Times of India
NEW DELHI: The government on Friday announced a steep cut in interest rates on small savings schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC) and Kisan Vikas Patras – which will fetch up to 90 basis points lower returns during the April-June quarter.
On January 14, TOI first reported that the government could reduce interest rates on small saving schemes but the extent of the reduction has taken everyone by surprise.
In case of PPF, the most popular scheme for middle-class savers, the reduction of 60 basis points (100 basis points equal a percentage point) is among the sharpest in nearly 15 years. Although the rates are to be reviewed every three months, if they remain unchanged during the next financial year, someone with Rs 5 lakh in his PPF account would face a hit of Rs 3,000 in 2016-17.
But the announcement has not gone down well with the middle class. Angry protests have begun on social media with PPF trending on Twitter. The government, however, claimed the changes were linked to the market rate, offering a parallel to global oil prices.
A reduction in rates on small savings is also bad news for those with large balance in fixed deposits, especially senior citizens, as banks are now expected to follow government action with similar cuts.
For long, banks and RBI had urged the government to reduce small savings rates to ensure that banks cut deposit rates. This, in turn, will pave the way for lower lending rates and translate into lower EMIs in the coming months, should the banks decide to pass on the benefit. However, given that a two-three year fixed deposit (FD) with SBI fetches the highest rate of 7.5% a year, savings in PPF still remain more attractive, especially with tax benefits thrown in.
Though pressure had been building for several months, the government opted for a change from April, which is the annual date for reset. “It’s normal practice for the last few years to change interest rates from April and we have followed that. The rates are linked to the yield on government securities and we have followed the same practice with a mark up for senior citizens, Sukanya Samridhi Scheme, PPF and NSC,” economic affairs secretary Shaktikanta Das told reporters.
The government provides an annual spread of a percentage point on Senior Citizen Savings Scheme, 75 basis points (bps) on Sukanya Samridhi Scheme and 25 bps on PPF, NSC, five-year post office deposit and Monthly Income Scheme. But post office savings deposits of one-three years, KVP and fiveyear Recurring Deposits will not longer get the benefit of a higher spread.
Das said the average yield on government bonds had come down from 8.5% in 2014-15 to 7.9% during the current financial year. “It (reduction) is being done to make the rates more market aligned. This will enable banks to consequently reduce their deposit rates and extend loan and credit to public and borrowers at lower rates,” he told reporters but added that banks had to take a call on rates.
A sharp reduction in small savings rates have always been a ticklish issue politically with Yashwant Sinha facing severe criticism when he cut rates as finance minister in the Atal Bihari Vajpayee government.
Source : http://goo.gl/hBTO11