10-Yr National Savings Certificate to yield 8.9% while Public Provident Fund will fetch 8.8%

The small savings schemes had been seeing net outflow in recent years as the rate was lot less than what was available on other instruments.

According to the budget estimates there is likely to be a net outflow of Rs 10,000 crore from small savings schemes in the current fiscal.

However, investors are still likely to head to banks as even after the revision bank fixed deposit rates are higher than what is available under small savings scheme.

The funds raised by the schemes go to the centre and the states. In the event of a muted inflow, the borrowing burden shifts to market, as was the case last year, which puts pressure on interest rates.

The revision in rates is based on the recommendations of the Shyamala Gopinath Committee for Comprehensive Review of National Small Savings Fund.
The panel had advised the government to link interest rates on small savings to market rates.

It had asked the government to notify interest rates afresh at the beginning of every financial year based on the average yields on government securities of similar maturity with a positive rate spread of 25 basis points. Yield on the benchmark government year bond ranged from 7.8% to 8.97% in the calendar year 2011 leading to upward revision in the interest rates on savings deposits. This is first revision in interest rates after the NSSF was revamped in December in line with the panel's recommendations.