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 PPF the 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.
Source : Economic Times
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