Public Provident Fund or PPF is a long-term investment scheme with a lock-in period of 15 years. It is a savings-cum-tax free investment scheme provided by the govt. of India to mobilize small savings in the form of investment.
Despite the continuously decreasing interest rates, the Public Provident Fund (PPF) is considered as one of the most trusted investment options as it has sovereign backing of the government. The most attractive benefit of PPF is that it enjoys tax exemption benefits along with a high rate of return among fixed income securities.
The maximum amount of investment that can be made in a PDF is Rs. 1.5 lakh every year and the minimum amount is Rs 500 every year. Investments in PPF need to be made keeping in mind long-term goals such as retirement, child education, marriage, etc.. Another advantage of PPF is that after the account matures in 15 years, the investor can either withdraw the amount or he can choose to continue his investment with or without making further contributions on his discretion.
Why PPF?
.1. Attractive interest rates – The interest rates offered by PPF are 7.1% which is higher compared to interest rates offered by banks on FDs. The maximum interest rate offered by banks on FDs is around 6%. Hence, the interest rates offered by PPF is over and above the interest rates offered by some of the larger banks.
2. Tax Benefits :
PPF is one of the investments that fall under the Exempt-Exempt-Exempt (EEE) category. All deposits made in the PPF are deductible under section 80C of the Income Tax Act. The interest earned in the case of bank deposits is taxable, which affects the highest income tax bracket investors the most and they tend to lose plenty, making PPF a decent choice.
3. Assured Return – The uncertainty or risk involved in keeping a PPF account is minimal as it is backed by the Government. Here, the investors can ensure safety and assured risk-free returns as well as complete capital security.
It is important to note that a PPF account cannot be closed before maturity. A PPF account, however, can be transferred from one point of designation to another but cannot be closed prematurely. Only in the case of the death of the account holder, the nominee can file for the closure of the account.
