Every one is Happy that PPF rate is increased by 0.6 % But do we know that PPF rates are no longer Fixed for long time NOW? .
If you had planned for your future corpus thinking that your Public Provident Fund (PPF) and other small savings options would give almost fixed returns, be ready to make fresh calculations. From December 1, the small savings returns would become market-linked, (Read More here)aligned with the G-Sec rates (government securities). Being market linked, the rate of return would come down whenever there is a downward revision of interest rates, making it difficult for you to work towards a long term financial goal, like building retirement corpus, through instruments like PPF.
PPF forms an integral part of the long term planning, especially of the middle and the lower middle income groups. The return on PPF has been increased to 8.6 per cent for this year. However, going forward there would be no fixed return element attached to it.
Traditionally the future projections for PPF corpus, a product with 15 year maturity period, revolved around an approximate annual compounding return of 8 per cent. Most people use their provident fund for purposes such as children’s marriage, higher education, or buying a house. “It will be difficult to project future income based on PPF returns. Annual adjustments depending on the prevalent PPF rate would have to be made to arrive at the right amount”, says Kiran Telang, a Mumbai based financial planner.