Public Provident Fund (PPF) is the most popular of the small savings schemes. This is a great option for good returns. Know its 5 benefits
Public Provident Fund is the most popular savings scheme among the small savings schemes as it helps you to build strong retirement capital. It is a longterm investment that not only provides assured returns and also doubles quickly as an instrument that provides the best tax benefits. The interest rates on PPF are fixed by the government every quarter and currently it is 7.1% per annum. Therefore, if you do not have a PPF account, then here are five reasons that will encourage you to open this account as soon as possible.
Low investment amount and long maturity period
The feature that makes PPF a preferred investment option is that it allows the investor to deposit an annual amount of at least Rs 500 / – to Rs 1.5 lakh. PPF matures in 15 years, and thus helps in long term goals such as retirement, education of children, etc. After 15 years have passed, you can voluntarily increase your investment in blocks of 5 years.
Benefit in taxation
A PPF account is a great option for tax-saving investment, as you can avail tax-deductions for deposits up to Rs 1.5 lakh a year under Section 80C of the Income Tax Act. The interest earned on PPF balance is completely tax-free. Since tax deductions are available under Section 80C, no tax is levied on the interest earned, and also there is no tax on the maturity amount. Therefore, there is a triple-tax benefit on PPF.
Premature closure of account
You are allowed to close the account prematurely i.e. before the end of the 15-year period, if the money is needed for the education of your dependent children, for which the relevant records need to be shown. Premature closure of the account is allowed even if the investor’s residency status changes from resident to non-resident (resident to non-resident). Note that a premature closure of the account entails a 1 percent interest penalty.
You can take partial withdrawal
You get the facility of partial withdrawal once a financial year on completion of the seventh year from PPF account or six years after opening the account. An account holder can withdraw up to a maximum of 50% of the balance at the end of the fourth year before the year of withdrawal or the balance at the end of the previous year, whichever is less. However, it should be remembered that premature withdrawal will not give you the benefit of compounding and may possibly affect your longterm goals.
You can take a loan against PPF
As a PPF account holder, you can take a cheaper loan during a financial emergency. Loans are given against PPF balance. The interest rate on PPF loan is 1 percent higher than the interest rate earned on your account. So if your current interest rate is 7.1%, then the loan will be given at an interest rate of 8.1% per annum. You can take this loan from the third year onwards and in the sixth year after opening the account. The loan should be repaid in 36 installments.
It is always prudent to make a deposit before the 6th of every month as interest on PPF is calculated between the sixth and last day of every month. Also, to maximize profit, invest in a PPF account at the beginning of the financial year, which happens in April. This will help you earn interest for the whole year.
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