In the fast-changing economic scenario, the biggest concern remains the securing of a comfortable and stable financial future. With the market being always in a state of flux, it becomes a time when it is of prime importance to find secured and dependable investment options for a sound financial future.

Among the long-term investment alternatives, one of the best options is the Public Provident Fund-a Government backed savings scheme which not only gives attractive interest rates but also has immense tax benefits. This blog shall take a deep dive into many features related to the PPF, like tax benefits, maturity and extension rules, eligibility criteria, interest rates and calculations, contribution requirements and much more. By knowing these essential elements, the investor can make better decisions for their PPF investments and make the most out of this safe savings plan.

What is a Public Provident Fund?

For that purpose, it has established the Public Provident Fund (PPF). And thereby, it has always given investors safety together with some attractive interest rates together with tax benefits, thus giving a reason for many investors to choose PPF as an alternative. PPF is not just an addition to one’s wealth accumulation; it is actually bringing up a financial nest for the future. The plan has a lock-in for 15 years, and later, it can be increased in blocks of 5 years. PPF is simply not an investment but shows a commitment towards securing financial well-being for oneself and loved ones.

The main objective of introducing PPF was to raise small savings, which will be invested and brought in returns. It is more of an investment option that offers the facility to save toward retirement while saving taxes from the annual income. If there is a desire to create a safe investment avenue by saving on tax and fetching assured returns, then PPF account opening is indeed a must.

When opening a PPF, the account of the investor is opened and interest is compounded on a month-to-month basis simultaneously. Investors primarily use the PPF at the time of strategic planning to save regularly for creating their retirement corpus since it has a maturity period of 15 years and can be extended. The reason for its popularity among small savers: good interest rates, tax exemption.

Features of the PPF accounts

PPF account is one of the most popular long-term savings schemes in India that comes with multiple features like tax benefits, a fixed tenure, flexible deposit amount, etc. Let us have a look at some of the features: – 

Tenure

The money invested in a PPF account is locked for 15 years so that they cannot be fully withdrawn during this period of time. After the lapse of the initial period of 15 years, they can extend the period for further five years if they are made to do so.

Risk factor

PPF is a scheme under the government guarantee that provides a fixed return. Thus, it is one of the safest investments available with almost zero risk. It provides assured, risk-free returns as well as complete capital protection. Thus, they are generally used as a diversification tool for the investor’s portfolio.

Mode of deposit

Contributions towards PPF may be made through cash, cheque, demand draft (DD) or even through internet fund transfer. There is no limit as to the number of contributions or the amount of the installments. However to maintain its active status, a minimum contribution in a PPF must be made every year.

Limits on investments

It would accept only when the minimum amount of Re 100 is deposited as also would require a minimum deposit for every year of Rs.500 at least for 15 years on PPF accounts. What’s more, you can deposit each financial year up to and including Rs 1.5 lakh in a financial year, either in the form of a lumpsum or in a maximum 12 instalments.

Account Limit

A customer can open only one PPF account for himself. He can have another account only if he had opened an account for a minor earlier. A PPF account holder can name a nominee for his account, either at the time of opening it or after.  Opening a Joint account is not permitted.

Fixed Interest Rate and Tax Benefit

PPF Investments offers a fixed rate of interest that is announced by the government quarterly. The compounding takes place annually. The interest returns from the PPF and the amount at maturity are tax-exempt under section 80C of the Income Tax Act 1961.

Benefits to Invest in Public Provident Fund (PPF)

Public Provident Fund (PPF) investing has some advantages:

Tax Benefits

PPF offers tax benefits at various stages. Under Section 80C of the Income Tax Act, contributions made to the PPF are eligible for deductions up to a certain amount. In addition, both the interest accrued and maturity are tax-free.

Risk-Proof Guaranteed Returns

Since the government supports PPF, it is a good investment avenue for low-risk capital investors since they earn assured returns on their investment based on the interest rates announced by the government for that period along with assured capital protection.

Long-term Savings

As the lock-in period for PPF is 15 years, there is always a pressure of discipline in terms of savings for the long-term investments or loans or retirement corpus. Also, you can have this account extended by five years in units also at the time of maturity.

Flexibility in Contribution

You can open this account with an initial amount deposited and invest up to the maximum provided limit in the year. This flexibility suits any given income group.

No Market Dependency

Unlike many other investment opportunities, PPF investments are not vulnerable to market fluctuations, thus ideal for the risk-avoiding people, who could save tax with returns. Retirement Planning It helps in retirement planning since it creates a corpus on account of the long term, tax benefit and steady guaranteed returns.

Important of all, PPF despite providing with various benefits cannot equate the same returns which may be obtained from alternative higher risk investments like equity. Thus, it will basically form a part of the overall investment portfolio and not act as an investment vehicle by itself.

Limitations of Public Provident Fund

There are a few limitations attached to the PPF account that you must keep in mind before investing. Let’s go through these limitations of PPF one by one:

Mandatory lock-in period

PPF investments mature after 15 years, which may not be viable for investors looking for short-term investments that can give assured returns like FDs.

Not-so-great returns

The returns on PPF are marginally higher than the inflation rate, which may discourage most investors from joining the scheme. For example, the interest rate currently stands at 7.1%, which is somewhat higher than India’s average inflation of 6% over the last decade.

Limit on maximum investment

You can’t invest more than Rs 1.5 lakh per fiscal year which can prove to be a barrier for those who look to make a bigger corpus from PPF.

Withdrawal Limitations

Investors can withdraw only from their PPF account from the seventh financial year from the date when the account has been opened.

Only available for Indian citizens

Only resident Indians are eligible to open a PPF account. No account can be opened for non-residential Indians, Hindu Undivided Families, or any trust. However, whatever account is already open under their name remains operative until the completion of the tenure.

Conclusion

In a nutshell, investing in a PPF can lead to a stable financial future. It is pretty much evident that the discipline of regular contributions, coupled with compounding, can pave one’s way toward achieving their life goals. The ease, safety, and nature of being government-backed will make PPF an attraction for anyone looking to start building a robust financial base.