Want to dodge volatility during times of crises? Turn to small savings schemes

Amidst the war in West Asia that has made equity markets uncertain and volatile, small savings like the Public Provident Fund, National Savings Certificate and the Sukanya Samriddhi Scheme could be a good option for small investors. With stable returns and the option to diversify their portfolio, small investors could avoid too much uncertainty in long term investments to some extent.

Experts point out that the recent volatility in equity markets over the last one and half year has made the returns on several products shaky. For instance, the short-term returns of mutual funds have become uncertain. The rates on fixed deposits too have become less attractive amidst rising inflation and tax treatment.

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D. K. Srivastava, Chief Policy Adviser, EY India notes that with increasing uncertainty arising from the West Asia conflict and with the flight of net foreign capital flows from India, the government may need to rely more on domestic savings to finance fiscal deficit. “In this scenario, the government can promote small savings as an avenue for medium- to long-term investments.  For this to happen, interest rates on small saving instruments need to be revised,” he said.

While the Centre has not changed rates of small saving schemes for over eight quarters now, they continue to have attractive returns. The PPF offers a return of 7.1% while the Sukanya Samriddhi Scheme and the five-year Senior Citizens Savings Scheme offer returns of 8.2% each. The five-year National Savings Certificate has a return of 7.7% for the first quarter of the fiscal.

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Experts also highlight that while tax benefits for these products – exemption of up to Rs 1.8 lakh annually under the erstwhile Section 80C of the Income Tax Act, 1961 and now Clause 123 of the Income Tax Act, 2025 are available to only those who remain under the old tax regime, these should not be seen as a tax saving product only.

Harshad Chetanwala, Co-Founder of financial planning platform MyWealthGrowth.com says that small saving schemes should not be looked at from the point of view of tax savings as Section 80C is available only for those in the old income tax regime.  “PPF and the Sukanya Samriddhi Scheme still have tax exemption on the interest and the corpus.

But from the perspective of diversifying one’s portfolio, small savings are still a good option and can be part of the investor’s debt allocation,” he points out.