PPF is one of the safest investment instruments available for Indian citizens. The Government of India backs it and hence, investors can trust it to grow their hard earned money.
A Public Provident Fund (PPF) is an investment scheme introduced by the National Saving Organisation to promote small savings and investments. PPF is a deposit account that can be opened with a designated bank or a post office. The main objective of PPF is to provide a long-term investment opportunity for people to create a retirement corpus. This is a good option, especially for those who are not covered by the provident funds from their employers or for self-employed people.
Public Provident Account offers multiple benefits. The money invested in PPF account is in the safe hands as it backed by the Government of India. The deposits made in PPF account qualifies for tax deductions, and you can also avail a loan against your PPF balance. Let’s discuss each of the benefit offered by PPF.
Invested amount, interest and returns earned from PPF account are tax-free. There are very few investment options available in the country, which offers tax-free returns to the investors. Many investors consider this as one of the significant reasons to invest in Public Provident Fund. Tax exemption is available under Section 80C of the Income Tax Act, 1961. You can invest up to Rs. 1.5 lakh each financial year and get a tax break. PPF is also a big saving for those who fall under a high tax bracket.
Rate of return
As of now, the interest rate offered on a PPF account is 7.9% per annum which is compounded yearly. The rate of interest on different small saving schemes, including PPF, is revised quarterly. The interest rate offered on PPF account remains the same for every bank and post offices. In recent years, the interest rate offered on PPF account has gone down. However, it is still better than that of fixed deposits.
Minimum and maximum investment limits
Investors can start investing in a PPF account with a small amount of money. The minimum amount that needs to be invested in this account is Rs. 500, whereas the maximum limit per annum is Rs. 1,50,000. The subscription should be in a multiple of 5 and can be paid in a lump sum or installments. It is important to note that a penalty may apply if you fail to deposit the minimum amount in a financial year. This helps the investors to continue investing and keeping their PPF account active.
The best long-term investment scheme
PPF is a long-term investment avenue for 15 years with a lock-in period of five years. It promotes long-term saving goals. You can also use your PPF account to create a retirement corpus. The interest is compounded annually. Hence, returns are generally higher in Public Provident Fund as compared to bank FDs.
Moreover, a PPF account holder can withdraw funds up to 50% of the balance amount at the end of 5th year. This lock-in period helps to impart regular saving habit that helps one to earn higher returns in the long run.
A PPF account can be continued even after maturity with a lock-in period of 5 years. Investors are not required to make any further contributions during this period. However, partial withdrawals are allowed even during this five-year extended term.
High on safety
Being a government-backed investment scheme, PPF remains an absolutely safe investment option, and there is no fear of the principal or interest income getting lost. Since it's a long-term investment, you can earn interest on the interest income. At the end of the term, you will have a handsome amount with you which can be used for retirement purpose, child’s education, child’s marriage, etc. A PPF account can be opened for a minor too, and you can avail tax benefit on the investment made in PPF account. Other important reasons to invest in Public Provident Fund scheme
- You need not have to go for a personal loan as you can avail a loan against your PPF account balance.
- In case you have not made any deposit in a year in your PPF account, then your account gets deactivated. However, you can revive your account by paying a penalty of Rs. 50 every year of discontinuation along with the minimum subscription amount.
- A PPF account is free from any liability or debt incurred by the member. It is also exempted from Wealth tax.
Who can open a PPF account?
Following is the eligibility criteria to open a PPF account.
- Indian residents above the age of 18 years are eligible to open a PPF account.
- An individual can open up to one PPF account.
- NRIs, who had opened a PPF account when they were Indian residents, can continue to invest in their PPF account till maturity. They do not have a facility to extend the period.
- Minors are eligible to open PPF account under a guardian.
- HUFs cannot open a PPF account. All accounts opened before 13th May 2005, can be operated till maturity with no extension benefit. The potential of compounding will help you grow your investment. To enjoy the most out of your PPF account, start investing from the beginning of the financial year. Happy investing!
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