PPF  

Stock market is down by around 50% since January last years, while most of the mid cap & large cap mutual fund schemes have generated around 45% to 60% negative returns in the same period. The bloodbath in Indian and global financial markets along with slowdown in industrial and GDP growth numbers have made retail investor less risk averse and they are shifting their investments towards safer instruments such as PPF, Fixed deposits with Public sector banks, Senior Citizen schemes, Gilt funds, assured return plans of insurance companies etc. Some of these schemes are not only safe and risk free but also offers tax benefits. With increased volatility in capital markets, there is a surge in demand for small saving schemes as a safe haven. Some of these options such as PPF and senior citizen schemes need to be part of asset allocation for investors.
The following chart shows comparison of various investment avenues for retail investors.
Particulars
Senior Citizens Savings Scheme
RBI Savings Bonds
Post office Monthly Income Scheme
Post office Recurring Deposit
National Savings Certificate
Kisan Vikas Patra
PPF
Rate Of Interest
9%
8%
8%
7.50%
8%
8.40%
8%
Interest payment frequency
Quarterly
Half Yearly / Cumulative
Monthly
Compounded quarterly
Half Yearly
Compounded annually
Compounded annually
Eligible Age (Years)
Above 60Above 55 for VRS retirees
NA
NA
NA
NA
NA
NA
Tenure
5 yearsExtendable by 3 more years
6 years
6 years
5 yearsExtendable by 5 more years
6 years
8 years 7 Months
15 Years
Premature withdrawal
After 1st year
Not Available
After 1st year
After 1st year
After 4th year
Available
After 7 years (Conditions apply)
Transferability
NA
Can be gifted to close relatives
NA
NA
Yes
Yes
NA
Taxability of Interest Income
Fully Taxable
Fully Taxable
Fully Taxable
Fully Taxable
Fully Taxable
Fully Taxable
Fully Exempt
Max Investment ceiling Rs.

15,00,000
NA
4,50,000 in Single Name9,00,000 in Joint Names
NA
NA
NA
70,000 p.a
Min Investment ceiling Rs.
1,000
1,000
1,500
10
100
500
500
Nomination facility
Available
Available
Available
Available
Available
Available
Available
Mode of Holding
Physical
Bond ledger a/c
Physical
Physical
Demat, Physical
Demat, Physical
Physical
Tax benefit u/sec 80 C
Not Available
Not Available
Not Available
Not Available
Available
Not Available
Available
A word of caution: Although, it is good to keep some risk free investment in your portfolio as a part of overall asset allocation, there are certain pitfalls as under.
Excessive investment in such schemes may keep you away from your financial goal
Some of the investment plans are neither tax efficient nor do they beat inflation. You need to look at post tax return and real rate return. Despite higher interest rate, the real rate of interest may be negative because of higher inflation.
Some of the schemes like NSC are illiquid.
Although, there is no credit or market risk in such schemes, there could be re-investment risk, as the interest rate may be lower at the time of renewal.
Investors need to match their time horizon with a suitable product and thus reduce some of the risks on investment. To accomplish financial goals within the desired time it is always prudent to have exposure to equity, real estate, gold and other assets. One should diversify investment into various investment options and across companies. Depending upon the time horizon for a financial goal, calculated risk might be taken with the investment.