Rising deposit rates take the sheen off MIS

KOLKATA: One of the most popular small savings instruments, the postal department’s monthly income scheme (MIS), is fast losing steam. The scheme received the first blow in early 2006 when the government withdrew the 10% bonus on maturity. More recently, the rise in bank deposit rates has taken some of the sheen off MIS.

Rs 14,400 crore has broken out of the MIS net between April and December 2006 alone. Something that gives some sense of the sizeable quantum of small investments that appears to have been parked in alternative avenues like bank deposits. Senior officials with the postal department’s savings wing confirm the trend. MIS is no longer a darling to small investors. There’s been a slide in growth in new MIS accounts ever since the bonus was withdrawn.

We’re also witnessing a decline in renewal of accounts after maturity as investors are increasingly turning to bank deposits, a postal department official said on conditions of anonymity. A cross-section of small investors that ET spoke to seconded the emotion. Numbers relating to postal savings schemes released by Reserve Bank of India (RBI) also corroborate this. In the first nine months of 2006-07, deposit collections through MIS plunged 42.4% to Rs 21,424 crore, compared with Rs 37,172 crore collected in the previous corresponding period.

MIS collections had stood at Rs 37,078 crore during April-December 2004. These numbers were made available to RBI. According to senior officials with the postal department, the fall in MIS collections started back in January 2006, just after the withdrawal of the 10% bonus. The declining trend continued when banks started offering lucrative returns on their term deposits.

At present, bank deposit rates for 3-5 years carry close to 10% interest rate. Senior citizens also get additional interest on bank deposits over the card rates. By comparison, MIS investors, also largely senior citizens, get a modest 8% annual return on their monies. There is no senior citizen benefit attached to the MIS from the postal department. Be that as it may, investors also have the option to maximise returns by investing in monthly income plans offered by a host of mutual fund houses.