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THE Union government has increased the interest rates on public provident fund (PPF), national savings certificate (NSC) and post office savings scheme by 0.20 to 0.50 per cent from April 1, in a bid to make them competitive and enthuse retail participation. In addition, several banks have once again increased the interest rates on fixed deposits (FDs), including tax-saving FDs. So, should you invest in small-savings schemes or look at other comparable products in the market such as FDs? There are various factors that you should consider before choosing a savings instrument such as liquidity benefits, lock-in period, tax benefits and returns that the savings instrument is offering. Let us look at the most popular instruments.

NSC comes at par with tax saving FDs: NSC comes with a lower lock-in period of five years and there is no upper investment limit. The interest rate for a five-year NSC is 8.6 per cent. The government launched a new NSC with a 10-year maturity last December that will offer an interest rate of 8.9 per cent from April 1.

You can consider a 10year NSC if you are more inclined towards debt instruments and can lock-in money. This instrument is more beneficial for those in the 30 per cent tax bracket.

So, for example, if you are in the 30 per cent tax bracket and have invested in a fiveyear NSC, your post-tax return will be 6.02 per cent and for a 10-year NSC, your posttax return would be 6.23 per cent. In addition to offering a good interest rate, another noteworthy feature of NSCs is that the annual interest accrued can be considered as a fresh investment under section 80C. Also, you can take a loan against your NSC.

Fixed deposits: These instruments are suitable for those who are not in the higher tax bracket and have a medium-term goal and for those who would require money in the near future.

The five-year, tax-saving bank deposit qualifies for tax benefits under Section 80C.

However, the income above Rs 10,000 qualifies for tax deduction at source. Take for instance, ICICI Bank Tax Saver Fixed Deposit (five years) that offers an interest rate of 8.75 per cent. If you are in the 30 per cent tax bracket, your post-tax return will be 6.12 per cent, almost the same as a five-year NSC.

PPF continues to score over all tax saving instruments: From April 1, the interest rate offered on PPF will be 8.8 per cent from the earlier 8.6 per cent being offered since December 1, 2011.

PPF's interest rate every year will be linked with the 10year government securities rates. Under Section 80C, PPF qualifies for a tax deduction up to Rs 1,00,000.

Also, the income earned from PPF is not taxable and that makes it the most superior tax-saving product.

PPF also has an edge over the employees' provident fund (EPF) whose rate is not market-linked and is at present offering 8.25 per cent.

The lock-in in a PPF is 15 years and the entire balance can be withdrawn on maturity. PPF accounts can also be extended for a period of five years after maturity. So, continue to renew your PPF scheme for five years every time it matures. During these five years, you earn the rate of interest and can also make fresh deposits.

But, unfortunately, investment in PPF is restricted to Rs 1,00,000 per year.

PPF should be a mandatory component in every retail investor's portfolio because of its post-tax returns. If you can afford, invest the full Rs 1,00,000 (the maximum you can invest).

Post office recurring deposits: From April, a post office recurring deposit will provide 8.4 per cent for a five-year monthly deposit.

At present, most banks are offering 8.75-9.25 per cent on recurring deposits or term deposits of a similar period. Thus, these are less attractive for now because bank FDs are offering higher interest rates.