An Analysis of Small Savings Schemes in India

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Case Details:

Case Code : FINC067
Case Length : 9 Pages
Period : 2007-2010
Pub. Date : 2011
Teaching Note : Available
Organization : NA
Industry : Financial products and services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"[T]here is a shift towards small savings scheme. But from the macro point of view, there may not be an impact on the overall savings rate." 1

- M Narendra, Executive Director, Bank of India on mobilization of funds from banks to small savings schemes, in 2010


In India, there are multiple investment avenues available to meet the differing needs of investors. These investment options differ from each other based on their returns, maturity period, and the risk taking capacity of the investors, among other things. In terms of their returns, they can be classified into high return and low return classes. However, risk and returns go hand in hand -- the higher the risk involved, the higher the returns to be expected. Investors who aspire for higher returns have to bear a high level of risk as well. An example is an investment made in the highly volatile stock market. As far as the time aspect of the investment is concerned, there are financial instruments which are short term in nature and

these include savings bank accounts, money market or liquid funds, and fixed deposits with banks. On the other hand, there are some financial instruments which offer a long-term horizon for investment. These include post office savings, public provident fund (PPF), company fixed deposits, bonds, and mutual funds.

Small savings schemes in India are framed and enacted by the central government under the Government Savings Bank Act, 1873, and Government Savings Certificate Act, 1959. Small savings schemes came into existence after independence with the objective of providing safe and simple investment opportunities to the lower and middle income groups. These schemes were channelized and administered by government institutions such as post offices and nationalized banks. With the same objective, the PPF was established in 1968 for individuals to save for their investments.

Introduction cont... - Next Page>>

1] "Investors Lose Interest in FDs, Shift to Govt Savings Schemes,", March 25, 2010.

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