PPF rates now more aligned with G-Sec, an expected good move

  • Over the past 1year, 10-year India G-sec yield have fallen around 50 basis points. This has led government to reduce PPF rates by 60 basis points.
  • An ordinary investor of such saving schemes may feel agitated for reduction in rate, but it’s a fair reduction.
  • In a reverse situation, when interest rates are rising, it’s more likely that government will increase the interest rate of PPF.
  • In FY11, PPF rates were 8%, with the rising 10-yr G-sec yield, PPF rates were revised to as high as 8.80% in FY13.
  • It’s actually good if government ALWAYS keep it align with the G-sec yield, so that savers (lenders in other words) will always get same interest which government pays to the other bond holders. So this reduces scope of extra-ordinary gain or loss.
  • Below is the 15 year chart of Avg 10 year G-sec yield and prevalent PPF Rate, where one can see that PPF rate is always more than G-sec yield.

PPF_and_GSec_Yield

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