One misses the opportunity to be diversified across other asset classes for optimising the returns potential

Santosh Joseph

A large portion of Indian household savings are mobilized through small saving schemes. In 2017-18, Rs 5.96 lakh crore was the gross amount mobilized. The primary objective of the small savings program driven by the Government has been to promote the habit of thrift and savings among citizens of the country. The emphasis on the words  ‘small savings’ is to bring the small saver into the fold of the savings movement.

Small savings schemes fall under the purview of National Savings Institute (NSI) that works under the Department of Economic Affairs, Ministry of Finance, Government of India. Operated through post offices and designated banks throughout the country, small saving schemes can be accessed in the remotest parts of the country.

Small savings schemes are a huge success even to this day because they offer security, liquidity and tax benefits to investors. Some of the small savings schemes that are popular include the Kisan Vikas Patra (KVP), Sukanya Samriddhi, National Savings Certificate (NSC) account and national savings time deposit, to name a few.

These plans are of great social importance and investors continue to get attracted to them due to their low risk and guaranteed returns. From the smallest to the savviest investors, from remote areas to developed geographies, small saving schemes are considered risk-free and secure.

However, despite their safety and reasonable returns, there are a few points to ponder over regarding small saving schemes.

Declining rates

Since all these plans have defined benefits, the rate of returns are fixed by the government and could change from time to time, with periodic reviews. Over the years, these returns have seen a downward trend. For example, the PPF rate, at 7.9 per cent, is at a multi-decade low. With global rates falling, these rates are a huge burden to the government. They may eventually link them to a benchmark such as the repo rate to maintain a balance in rates offered to investors.

Inflation effect

With growing inflation and its effects, the cost of living has become expensive. Small savings rates just about beat inflation and very little real growth can be expected on your savings.


Small saving schemes such as PPF and SCSS need to be invested for a long-term period 10-15 years, and may not be able to provide enough liquidity in case of need.


When one invests in small savings instruments, the monies are with the Government and it offers a defined return.  One misses the opportunity to be diversified across other asset classes for optimising the returns potential.

Though it’s important to have certain allocation in your portfolio in small saving instruments depending on your needs, this can only be a portion of the asset allocation and not all your investments. The power of compounding in assets such as equities kicks in and adds tremendous value to one’s investments.


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