High security and safety of postal products attracts investors, but liquidity is low and investors must buy them with the objective of holding until maturity.
With the government increasing deposit rates on several small savings postal plans, there is high interest among investors in this financial year. Many postal products give investors an opportunity to earn up to 120 basis points more than bank deposits.
One basis point is 0.01 percentage point.
A 3-5 year fixed deposit at SBI returns 6.5%. As against this, a 3-year time deposit at the post office returns 7%, while a 5-year deposit returns 7.5%. Returns from the National Savings Certificate (NSC), are higher at 7.5%.
Women savers have the option to buy into a shorter tenure product with a 2-year time frame, with an upper limit of Rs 2 lakh on investments.
The Mahila Samman Savings Certificate will pay 7.5% giving 50 basis points more than a bank deposit that pays 7%. Senior citizens opting for the senior citizen savings scheme (SCSS) with an upper limit of Rs 30 lakhs will earn 8.2%, against a 5-year deposit at SBI that pays them 7.5%.“Postal deposits offer very high safety and security. The recent rate hikes make them attractive for investors who are willing to hold until maturity and do not require intermittent liquidity,” said Vinayak Kulkarni, a Mumbai-based financial product distributor.
Advisors point out investors must consider their liquidity needs in postal deposits as there are limitations on withdrawals.
“While the NSC is a great option due to assured returns, since it has a 5-year tenure with limitations on partial withdrawals, it makes sense to not park that money which may be required in a few years’ time,” says Dev Ashish, a SEBI registered investment advisor.
Distributors believe rich investors continue to eye tax free products like the public provident fund (PPF) and Sukanya Samriddhi Account.
“Even though there is no increase in rates of PPF, it offers the highest post tax return to investors,” says Vikram Dalal, Managing Director, Synergee Capital. Rich investors continue to invest in the PPF where returns are 7.1% tax free, as compared to tax free bonds in the secondary market that offer yields of only 5.15-5.3%. Investors putting in money for their girl child stand to earn higher returns of 8% tax free in Sukanya Samriddhi Scheme.