PPF: Will those who invest in PPF get a shock? Interest rates may be reduced..

The Reserve Bank of India (RBI) has cut the repo rate by 100 basis points this year, due to which there is speculation that the interest rate of the Public Provident Fund (PPF) may go below 7% in the next review to be held in July. Some experts say that the falling yield of government bonds and the formula for determining interest rates are pointing towards this reduction, while some believe that due to political and practical reasons the government will not take any major decision so soon.

Currently, the interest rate of PPF is 7.10%, which is linked to the average yield of 10-year government bonds. According to the formula of the Shyamala Gopinath Committee, the interest rates of PPF should be 25 basis points higher than the average yield of 10-year government bonds. Right now this yield is around 6.325%, which makes the PPF rate around 6.575%, i.e. about 52.5 basis points less than the current rate.

There will be no loss if you invest now.

After the RBI cut the repo rate by a total of 100 basis points in 2025, Scripbox founder and CEO Atul Shingal said, now all eyes are on the interest rates of small savings schemes for the July quarter. He advised investors to invest at the current rates before the possible cut.

The discussion of this interest rate cut is in line with the "accommodative policy" in RBI's monetary policy, which aims to promote economic growth. This year RBI has cut the repo rate by 25-25 basis points in February and April and 50 basis points in June, bringing down the repo rate from 6.5% to 5.5%. With this, the yield of 10-year government bonds has also come down from 6.779% in January to 6.247% in June. However, not everyone believes that the government will immediately cut the interest rates of PPF.

The government can decide out of the league.

BankBazaar.com CEO Adhil Shetty said, the Shyamala Gopinath Committee formula is just a suggestion, it is not binding, and the government has already taken decisions different from this formula. He said that PPF is a saving option that is very popular, especially among the middle class and those planning retirement. In such a situation, if interest rates are suddenly cut, people may leave the formal savings channel or turn to more risky options, which can harm financial inclusion. Therefore, the government can gradually reduce the interest rate.

History of PPF interest rates
PPF interest rates have seen fluctuations over the years. Currently, this rate is 7.1% per annum and it has remained the same since April 2020. Interest is calculated every month but it is added to the account on an annual basis. The highest interest rate on PPF was 12% from 1986 to 1999. After this, it gradually decreased. It was 9.5% in 2000, 8% in 2003 and 7.9% in 2017.

Today's rate of 7.1% may not be as high as before, but it still offers tax-free and government-guaranteed returns, making it an attractive option for long-term investors and risk-averse people. The new interest rates are expected to be announced by the end of June, which will be effective from July 1.

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