Recently, The Ministry of Finance on March 31st announced a significant cut in interest rates of small saving schemes like Senior Citizen Savings Scheme, Sukanya Samruddhi Yojna, Public Provident Fund (PPF) etc by 50 to 110 basis points. PPF rates almost hit 46 years low.

But soon on April 1st, our Finance Minister reversed the order and said the rates will continue as in the last quarter of FY 2021. This was a big relief for all the investors.

Here is a look at the current and proposed rates:

This sudden unexpected change in the interest rates created a panic in the market because many investors utilize these investments options (mainly PPF, FDs) every year to plan their long-term goals like retirement.

We believe this rate cut drama which happened this week should be taken as a warning that going ahead rates are likely to go down and soon, we will have to live with the new reality of low interest rates on savings.

When we see developed countries and their inflation and interest rates they are in low single digit, in some cases negative also. India is still a developing country and is on the path to become a developed country. Inflation has already fallen from double digits to low single digit in last 20 years and same is the case for interest rates. And that is the reason if we see PPF interest rate chart for last 20 year the trend is similar.

So, there was a time when PPF used to give 12% return and many investors would have planned their retirement in retirement calculator by taking rate of return @ 12% but after year 2000 you can see sharp fall in the PPF rates to around 8%. Current rate is 7.1%.

Below chart explains how increase in allocation to equities can improve overall portfolio returns:

Now, if we plan our retirement or other long-term goals considering 7% rate of return and rates falls to low single digit, then we will have to either postpone our retirement or compromise our post-retirement lifestyle. If PPF rate falls to 5% then even 60% allocation to equity would not help you achieve 10% returns.

Hence, to compensate this fall in interest rates, it is now important to introduce stocks & equity mutual funds in our portfolio. Because equity can fill the gap created by rate fall in PPF. In today’s scenario, one cannot create wealth or for that matter even beat inflation by not including equities in the portfolio.

Young earners should have 60-70% in equities because responsibilities are few and hence risk-taking capacity is higher. With increasing age, responsibilities (family, kids) increases, and so equity proportion should reduce but it should never come down to zero. Even 10-20% exposure during the retirement can help the last 10-15 years of our retirement.


If you are solely dependent on these fixed income investment options to achieve your long-term financial goals, then it is a high time to get out of your conservative mindset and allocate some portion to equities. Equities are volatile in nature but with proper planning and allocation, we can minimize the risk and maximize the returns. Also, it is the only option to beat inflation and generate better returns in today’s time.

Connect with your financial advisor today to assess your portfolio and plan your financial goals.

About Us: Malpani Investments specializes in Investment Advisory and Planning. Our Mission is to provide financial freedom to our clients by understanding their financial goals and helping them plan, save, invest and be disciplined, so that they can stop worrying about money and lead a happy and healthy life.  We help them understand personal finance in order to eliminate the gap between where they are now financially and where they want to be. Helping them with a suitable investment decisions so that they can give more time to their family, health and life aspirations. 
[email protected]