National Small Savings Fund schemes are losing out to stock market, bank and insurance products. Data show that net postal small saving deposits were negative in the first quarter with withdrawals at Rs 34,211 crore (Rs 342.11 billion), exceeding deposits at Rs 31,002 crore (Rs 310.02 billion). Net NSSF collections declined by 34 per cent to Rs 55,604 crore (Rs 556.04 billion) in 2006-07, compared to Rs 85,086 crore (Rs 850.86 billion) in 2005-06.
Lower return from NSSF schemes, in the range of 6-9 per cent per annum, seem to have led people away to other investment options that offer higher returns. In the last two years, debt oriented mutual funds, on an average gave over 12 per cent returns. Over a five year horizon, returns have averaged over 16 per cent.
Balanced funds, which are tilted towards equity, have done much better, giving returns of over 25 per cent in the last two years. Insurance companies have also been very aggressive with market-linked plans in the recent years and will continue to attract long term savings. With both mutual funds and life insurance offering tax incentives, small savings have lost the edge even on that front.
"Increasingly, the retail investor's portfolio will shift towards market-linked investments. Further, the younger generation of investors today do not have the traditional small savings products in their portfolio, even when it comes to low risk products," said Ashish Aggarwal, executive director, Invest India Micro Pension Services.
NSSF schemes like National Savings Certificate and Public Provident Fund offer 8 per cent interest half-yearly and yearly, respectively, and tax incentives under section 80C of the Income Tax Act.
Other NSSF schemes like Kisan Vikas Patra, Monthly Income Scheme, Time Deposits, Recurring Deposits and Senior Citizens Saving Scheme give 8.4 per cent, 8 per cent, 6.25-7.5 per cent, 7.5 per cent and 9 per cent returns respectively annually or half yearly. The investments in these schemes have lock in periods, but no tax benefit.
Despite the decline in net collections, the government has told Parliament that it is not possible to raise interest rates on NSSF schemes as it will require a concomitant increase in the on-lending rates to the states. States are borrowing from NSSF at 9.5 per cent per annum.
States who were keeping 100 per cent of NSSF collections till 2006-07, are likely to keep 80 per cent in 2007-08 as they feel borrowing from NSSF is costly. The remaining 20 per cent is likely to be borrowed by India Infrastructure Finance Company Ltd, provided interest rate is competitive.
All NSSF schemes are sold through post offices while Public Provident Fund and Senior Citizen's Savings Scheme are also distributed through designated branches of public sector banks and some private banks.
