So, it has finally happened. The rates for small savings investment products from post office has been raised. I would say that the PPF limit raised to Rs 1 lakh and interest rate raised to 8.6 per cent per annum was long overdue move. I don't think the rates have changed since 2004. But the key change to watch out will be linking the small savings rates with government securities which will make it more dynamic, realistic and market determined. Not only will the risk-return equation get fixed but also with such a large pool of funds being priced near market rates, it will make the interest rates in the economy more market linked. There also will be a level playing field for competing products especially the New Pension System which really deserves a leg-up. Indian investor desperately need to have an investment menu where there is a gradual gradation of risk. Right now it is too jerky.
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