PPF suffers fourth biggest Interest rate fall in its history!

The 0.8% drop in PPF interest rate for April-June 2020 is the fourth biggest drop in its history! A study of historical PPF rates.

Published: April 1, 2020 at 8:34 pm

Last Updated on December 29, 2021

PPF interest rate for Apr-Jun 2020 quarter fell 0.8% from 7.9% to 7.1%. This is the fourth biggest fall in its history. An analysis of PPF interest rate history.

We had shown yesterday for those worried about 7.1% PPF interest rate that It is higher than what it should be! A good 0.35% higher than 10Y gilt yield to be precise. First, let us look at the interest rate history of PPF and what we can infer from it

PPF Interest rate history

Source: The PPF rule book from nsiindia.gov.in and finance ministry circulars.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

    🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
    YearRate of Interest
    PPF interest rate history from April 1968 to April 2020
    PPF interest rate history from April 1968 to April 2020

    Notice that the PPF rate has steadily increased since inception up to 1990, remained flat at an astonishing 12%, fell down sharply to 8% and after that increased a little in response to inflation in 2012-13 and then has been gradually on the way down.

    The sharp increase from 5.8% to 7% in 1974 was most likely triggered by the four-fold increase oil prices due to an embargo triggered by Americal aid to Israel. Read more: 1973 oil crisis

    After the inception, we have had the Bangladeshi liberation war (1971), the emergency (75-77) and Indias worst economic crisis ever – the balance of payments crisis (the Mid 80s- early 90s): 1991 Indian economic crisis.

    Many investors look at the above graph and want to go back in time when the rate was 12% failing to recognise that the Indian government was near-bankrupt at that time arm-twisted by the IMF to open up its economy. This was also a period when the stock market was going through its lost decade when it was moving nowhere for ten years post the Harshad Mehta scam.

    India was importing more than it was exporting. It had no forex reserves and it was on the verge of defaulting on payments. The IMF lent Indian 2 Billion USD with its gold reserve as collateral. The economy was opened up and the great Indian story was all set to begin … with a big hiccup.

    As a result of the economic crisis, Indian’s creditworthiness failed. It is due to this, coupled with the need for increasing borrowing, the PPF rate shot up to 12%

    It is a miracle that the government did not default on its debt during the 90s thanks perhaps only to the national small savings fund where all PPF and post office money lies.

    In the early 2000s, the situation improved. Inflation fell sharply to ~ 5-6%. The govt dramatically dropped interest rates and the great Indian bull run began. Debt funds gave 15-17% returns because of the rate cut!!

    • In Jan 2000 the PPF rate was lowered by 1%. The highest ever at that time with a % change in the rate of 8.3%
    • In March 2001, the rate dropped by 1.5% (% change = 13.6^%!). This is the biggest drop till-date
    • In March 2003 another 1% drop (% change =11.1%)

    An investor enjoying 12% in April 1999 was left starting at an 8% return just four years later! This triggered the stock market bull run until the 2008 US housing crisis hit the brakes on “India shining”.

    The 0.8% drop in PPF rate announced for April to June 2020 is the fourth largest absolute change and third-largest percentage change (10.1%) in the history of the scheme. The circumstances of this change is, needless to stay unique and is unlikely to trigger a bull run in the stock market anytime soon. For that to happen, another “rate” that is exponentially doubling every five days has to slow down. Let us hope it does.



    Do share this article with your friends using the buttons below.

    🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
    Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
    New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
    • Follow us on Google News.
    • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
    • Join our YouTube Community and explore more than 1000 videos!
    • Have a question? Subscribe to our newsletter with this form.
    • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

    Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

      Explore the site! Search among our 2000+ articles for information and insight!

      About The Author

      Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
      Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
      Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
      Our new book for kids: “Chinchu gets a superpower!” is now available!
      Both boy and girl version covers of Chinchu gets a superpower
      Both boy and girl version covers of Chinchu gets a superpower.
      Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
      Feedback from a young reader after reading Chinchu gets a Superpower (small version)
      Feedback from a young reader after reading Chinchu gets a Superpower!
      Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
      Buy the book: Chinchu gets a superpower for your child!
      How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
      Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
      We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
      About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
      Connect with us on social media
      Our publications

      You Can Be Rich Too with Goal-Based Investing

      You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
      Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

      Your Ultimate Guide to Travel

      Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)