Budget 2023-24: Will The Thrust On Small Savings Schemes Like SCSS Outshine Market-Linked Products?

Details of Union Finance Minister Nirmala Sitharaman’s annual budgetary pronouncements, now firmly in the public domain, have been dissected already. Union Budget 2023 will prompt senior citizens, especially retirees, to draw inspiration from its fine print. Consider the enlargement of the savings window—a doubling, In fact, it will work in their favour with effect from the next fiscal. 

Senior Citizens Savings Scheme (SCSS), the only one of its kind in the traditional government-administered small savings space, will now accommodate up to Rs 30 lakh, up from the far more modest Rs 15 lakh, where its ceiling stands today. This will create room, at least on paper, for a probable surge in retirement savings in a scheme considered safe by all and sundry. 

SCSS, which offers a fairly attractive rate of interest, is used by many retirees for running their households and meeting current expenses. Bulk investments are often made, and families frequently comprising several dependents typically rely on timely payments of interest. There is an element of certainty here, a vital factor championed by many. 

In fact, small savings schemes that are available at post offices throughout the country are considered absolutely safe by the public. There is no chance of default and the government is expected to sustain these schemes to the fullest extent. As for investment ceilings, such as the one allowed in the case of SCSS, and other major conditions concerning withdrawal and premature closure, these are water-tight in nature. 

Sections of the investing public have wanted a higher limit for their allocations for long. The fact that up to Rs 30 lakh can now be deposited in SCSS is an endorsement of their demand. It is indeed in sync with the other two relevant reforms triggered by the budget. One, a new short-term scheme exclusively for women (to be made available up to March 2025) has been allowed for the first time, albeit for a comparatively low ceiling of Rs 2 lakh. Two, Monthly Income Account Scheme will now be available for a higher allocation of Rs 9 lakh (up from Rs 4.50 lakh) and Rs 15 lakh (up from Rs 9 lakh) for single and joint accounts, respectively. 

These budgetary announcements, which have bolstered the case for guaranteed returns, will stand in contrast to the spirit of market-linked performance. Variable returns delivered by equity-based options, such as equity-linked savings schemes, which provide a tax sop as well, will not assure performance of any kind. ‘Managed’ alternatives, however, can potentially deliver superior returns. The probability of the latter being endorsed by a discerning and active section of the investing public is fairly high. 

It remains to be seen how retirees take to the new proposal, and whether it really appeals to their perceived risk-averse nature. Tax-adjusted returns are critical for the nitpicking investor, and such an individual will work out his net score after accounting for income tax, levies, and expenses.