Categorise the following as Revenue and Capital receipts/expenditure. Give reasons. (3)
(a) Salary paid to Army Officers
(b) Small savings raised from Public in the form of National Saving Certificate and Kisan Vikas Patra
(c) Profits of LIC, a public enterprise
Answers
Answer:
Investors are feeling relieved that interest rates on small savings schemes have not been reduced. Bond yields have fallen in the past 3 months, so logically rates should have been cut. If we go by the formula that links small savings rates to bond yields, the Public Provident Fund (PPF) should not offer more than 7%. However, fears of a backlash from the middle class seem to have prevented the government from reducing rates.
Observers believe the prevailing rates will continue for a few more quarters. “The formula has long been abandoned. Now rates are determined by politics and fixed by the Finance Ministry,” says Manoj Nagpal, CEO of Outlook Asia Capital. Even so, investors should not blindly invest in small savings schemes. Each instrument has specific features and one should assess which option best fits into one’s financial portfolio. We take a look at the pros and cons of some of the most popular small savings schemes.