- 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.