No good news for small investors.

Byline: Dilawar Hussain

At a branch of the Central Directorate of National Savings (CDNS) in the old-city area in Karachi, a group of doddering old men and women was chattering excitedly on the morning of July 1.

The reason for their happiness was the generosity of CDNS: the government had raised profit rates on various savings schemes. On Behbood Savings Certificates (BSCs), the window of investment available to senior citizens and widows, the monthly profit on a deposit of Rs100,000 had gone up by Rs40 to Rs1,230.

But the jubilation proved short-lived. A few months later, a feeble lady was seen embroiled in a lengthy and angry argument with the cashier at the same CDNS branch. The government had reduced the monthly return on BSCs by Rs190 to Rs1,040 on the deposit of Rs100,000.

From Nov 1, the government slashed profit rates on all National Savings Schemes (NSS). The return on Defence Savings Certificates was cut by 2.33 percentage points to 10.68pc. The profit on Pension Behbood scheme went down by 2.88 percentage points to 12.48pc. The return on regular income certificates was reduced by 2.04 percentage points to 10.92pc. The profit on special savings certificates decreased by 1.7 percentage points to 11pc while that on savings account was slashed by 2.05 percentage points to 8.20pc.

'This has been done as interest rates on NSS are benchmarked to secondary market yields on 10-year Pakistan Investment Bonds (PIBs),' explained an investment guru.

The profit rate on BSCs hit the all-time high of 16.65pc in December 2008 when the return stood at 16.8pc.

The profit rate has been slowly rolled back. At the last PIB auction on Dec 13, the 10-year yield dropped below 11pc. This is something to celebrate for less than 250,000 investors who can afford to gamble in the high-risk stock market as extra cash will flow into the equity market. However, it surely is bad news for more than seven million voiceless, risk-averse investors in NSS who may witness further evaporation of their returns.

One of the objectives of CDNS - an attached department of the Finance Division - is to provide a safety net to special segments of society like widows, senior citizens and government retired servants in the absence of an effective social security system. But all those noble intentions have been set aside as the government endeavours to find non-inflationary, non-bank borrowings to ride the overall fiscal deficit.

Only widows and retirees can invest up to Rs5m in...