PPF i.e. Public Provident Fund account is already a very famous investment option in India. When I received my first paycheck and decided to start investing some portion of my savings, I chose PPF over other options. There was a reason behind the same which I will try to explain in this article.
But Before, What Is A PPF Account?
PPF i.e. Public Provident Fund is a long term investment plan backed by the Government of India. It is a very popular investment plan and it has a proven track record of providing attractive and tax-free returns. Not only good return on investment, but it is also 100% safe and fully exempted from the income tax (i.e. principal amount along with the interest earned over the period).
I strongly suggest the Public Provident Fund account for all the salaried people in India. Why?
Well, because whether you make small money or receiving a big paycheck every month, you need to have a best yet secured investment strategy to safeguard your future (financially) in the longer run. In India, income taxes are applicable as soon as you start learning more than 2.5 lakhs annually, therefore it’s also important to choose an investment plan which could offer the best returns along with tax savings. Income tax slabs are subject to change as per government initiatives. Let’s explore some reasons to chose PPF over other investment plans;
Advantages of a PPF account
- PPF account offers the highest interest rates. I was able to get an 8.5% interest rate on my deposit, however, the rates are not fixed and it changes every year based on the Indian government’s financial decision.
- PPF account is a safe investment and fully backed by the Indian Government. Principle amount, as well as interest, earned both are protected by the government of India.
- Contribution to PPF account is eligible for tax benefit under Section 80C of the Income Tax Act. Also, it falls under EEE (Exempt, Exempt, Exempt) tax basket i.e. you don’t need to pay any tax on interest earned as well as maturity amount.
- Flexibility on investment – it means, there is no mandate to invest in PPF account in one go, you can invest monthly in your PPF account. However, you need to maintain 500 INR to keep your account active.
- You can take a loan up to 25% of the balance available at the end of two years preceding the year in which you apply for the loan between the third year and the sixth year. However, you must repay the loan in 36 months, the rate of interest of which is 2% higher than the interest you earn.
These were some of the best features of the PPF account but there are some disadvantages as well.
Disadvantages of a PPF account
- Your money is locked for 15 years – PPF is a 15 years of locking period plan but it allows partial withdrawal from the seventh year. However, you have the option to close the PPF account permanently in case you need the funds for severe medical treatment or higher education.
- You cannot open a PPF account if you are an NRI i.e. Non-Resident India.
- There is a cap of 1.5 Laks per annum towards your investment in PPF and you cannot deposit more than this in a single financial year.
- You cannot open a PPF as a joint account, hence there is no way if you want to have a PPF account with your wife/husband, family member, or relative. However, you and your wife/husband can have separate PPF accounts.
Who Needs A PPF Account?
PPF account is the best suit for everyone whether you are a salaried employee or a businessman. However, it is recommended to start investing in PPF account from the early days of your career. When you are young have just started earning, financial dependencies are not that much on you and therefore, you can park money for the long term i.e. 15 years.
I opened the PPF account immediately when my first salary got credited to my bank account. Of course, you need more money at a young age to enjoy life, for the party, etc but you can always keep a small portion of your saving in PPF (regularly). Sooner you invest in PPF, earlier you enjoy the return.
If you are the kind of person who wishes to secure his/her future financially for the long term by investing hard-earned money in a 100% risk-free investment plan then PPF is for you. PPF is not only 100% risk-free, fully exempted from the tax, and backed by the Indian Government but also offers the best return on investment.
If you don’t feel investing in the stock market for a very long time, PPF could be the best choice for you. You can consider PPF Account only for tax saving purposes also if you are a kind of person with little or no idea about various tax saving options or just confused with many options available.
How Can You Open A PPF Account?
Opening a PPF account is very easy these days and it gets opened as soon as you finish the formalities. You can even open online with your Indian banks like State Bank of India, ICICI Bank, HDFC Bank, AXIS Bank, etc. To open a PPF account online, all you need is an Adhaar card linked with your active mobile number. You can read the clear instruction on their website but trust me, it is very simple.
However, if you are not a technical sound or computer-friendly person, then you can visit any of the authorized branch of your bank and request for the PPF account. They will ask you to fill a simple form and deposit an initial amount. That’s it! Your PPF account will be open in no time. I have suggested only famous banks here because the services offered in these banks are comparable.
Some people suspect/fear private banks when it comes to depositing money for a long time, but don’t worry about PPF because your money is 100% safe as the PPF money invested only to the Government bonds and securities. Even though the bank gets the Insolvent, Government will give your PPF money with Interest.
How Much Contribution Should Go To PPF Account?
The contribution amount towards PPF is not fixed and the amount could vary from person to person. It varies based on your monthly income, monthly savings, your financial dependency, and near-future expenses. There is no rule when it comes to investing in PPF account one can invest a minimum amount of Rs 500 and a maximum amount of Rs 1.5 lakh.
However, if you don’t see any large expense coming in near future, then your contribution towards the PPF account should be higher whereas if you have big expenses coming in the next 2-3 years then your contribution to PPF should be less.
You can open a PPF account on the name of your minor child also but total contribution in both the accounts should not be more than 1.5 lakh in a financial year (combined).
People between the 21-28 age group tend to have less or no financial dependency, hence they can consider investing a large portion of their savings in PPF. However, you cannot invest more than 1.5 lakh in PPF account in a given financial year.
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I hope, the information provided in this article will help you to make an informed decision in your future investment planning. Do let me know if you have any questions related to the PPF account.