Within all the several alternatives open to invest safely and over the long term, the Public Provident Fund (PPF) emerges as one of the most trusted and proven options in India. It is an absolutely ideal instrument that caters to all young people interested in assured financial stability and wealth gain in the future with tax benefits and guaranteed returns backed by the government. Let’s take a look at its various features and advantages and the reasons why it should ever be a part of your financial portfolio.
What is a Public Provident Fund (PPF)?
Public Provident Fund (PPF) is a long-term savings scheme initiated by the Government of India for encouraging small savings by providing light returns, tax-free. It is under the direct Management of the Ministry of Finance, Government of India, and is available all over the country through post offices and authorized banks.
Key Features of PPF
Tenure: The PPF has a 15-year lock-in minimum, with extensions available in blocks of 5 years.
Interest Rate: Government revises interest rate after every quarter, currently, the PPF interest rate is around 7.1% per annum, which may be subject to change.
Minimum & Maximum Investment: Minimum investment is ₹ 500 and maximum investment is ₹ 1.5 lakh in a financial year.
Tax Benefits: Investments in PPF are tax-deductible under Section 80C of the Income Tax Act. The earned interest and maturity amount are also tax-free.
Partial Withdrawals: a Portion of the balance can be withdrawn after 7 years, but conditions apply.
Loan Facility: You can take a loan against your PPF account during the third to sixth year of your investment.
Why Invest in PPF?
1. A Risk-Free Investment: PPF is a government-backed investment, with no risk and guaranteed returns.
2. Tax-Free Returns: PPF contributions, interest earned, and withdrawals are fully tax-free under the Exempt-Exempt-Exempt (EEE) regime, which makes them an attractive investment choice.
3. Encourages Long-term Savings: Not only does the mandatory 15-year term apply to PPF savings, but it also sows the seeds of saving with retirement planning.
4. Flexible Investment Amount: Unlike investments that require a huge upfront cost, PPF allows for small, consistent savings, making it attainable for all.
5. Compounding Benefits: The magic of compounding ensures that over time, your investment is growing significantly and thus makes PPF an all-time favorite for investment options for the long term.
Who is Eligible to Invest in PPF?
- Employees with salaries looking to save tax with a PPF investment.
- Independent professionals who are not EPF members.
- Parents investing for their children’s future.
- Retired individuals in search of safe, consistent income.
Steps to open a PPF Account?
Open a PPF account in post offices or in an ascribed bank recognized by the government, for example, SBI, ICICI, HDFC, etc. It involves:
- Filling a PPF application form.
- Offering verification documents for address and identity.
- Making a minimum deposit of ₹500 to get started.
Summary
The Public Provident Fund is the most suitable investment for profit-seeking savers that want security, regular income, and income that does not incur tax. The long lock-in can be an inconvenient experience but brings better than average returns, making it popular to include into the investment portfolio. That is, if you seek to invest in a well-structured long-term savings scheme, take the plunge and invest in PPF!
