KARACHI: Small savers who park their money in the National Savings Schemes (NSS) have reason to sulk.

The rate of returns on NSS has plunged to a 10-year low.

Following the recent cut in policy rate by 50 basis points, the rates that were already on the slide stood further trimmed by 48 to 72bps across all products—Short Term Saving Certificates (STSC) and Regulator Income Certificates (RICs).

Fund managers are keeping an eye on the possible movement of cash out of the risk-free fixed investment avenue into the comparatively high return yet risk investment in stocks.

Small savers, such as pensioners and widows must face a dilemma. Shifting savings to banks which yield 6pc on average balance would not provide enough to make two ends meet. With nowhere to go, the depositors seem to be sitting on their pile of cash.

“In theory, lower returns on government savings schemes suggest shift of liquidity to higher yielding avenues (among them stocks),” says a fixed income analyst at brokerage AKD Securities.

Lured by the cumulative 127pc return provided by the stocks in the past three years, many may have taken a plunge. Yet three recent developments have pushed most depositors back: the bounce back of stocks to the previous high level; drying up of liquidity in the market due to the government’s offer of shares in HBL and the federal budget FY16 being just around the corner.

But for all that squeeze on NSS rates, the recently released figures by the SBP suggest that in the first eight months of FY15, the NSS had attracted additional funds in excess of Rs245.6 billion, which is about twice the amount of Rs128.1bn raised by the government guaranteed savings schemes in the comparable period of the previous year.

Digging deeper, the additional funds of Rs127.7bn this year poured into the Special Savings Accounts (SSA) and Bahbood Saving Certificates (BSC).

The Defence Saving Certificates (DSCs) received new investment amounting to Rs39.9bn. Fresh fund generation under the Special Saving Certificates (SSC) remained muted at Rs32.5bn while the depositors decided to test their luck by putting Rs45bn in Prize Bonds.

An analyst observed that the NSS schemes such as BSC, SSC and RIC mobilised Rs66bn in the first quarter of 2014-15 which was 50.9pc higher than the savings mobilisation achieved during the corresponding three-month period of 2013-14.

The government would be happy to borrow less but that would be at the cost of small savers. Except those who depend on the monthly returns from NSS, the public in general is likely to kick the saving habit.

Published in Dawn, April 8th, 2015

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