There are numerous investments for savings like Bank FDRs, Post Office Deposits, PPF, Gold, Silver, Immovable Properties, NPS etc.but if we analyse the advantages of PPF, it is Numero Uno in saving schemes/investments/ Tax saving devices.
GPF or General Provident Fund is a savings scheme available to government employees. EPF or Employees’ Provident Fund is a savings scheme available to employees in private organisations . PPF or Public Provident Fund is available to everyone – whether employed, self-employed or dependent.
It is pertinent that the Government of India backs the PPF scheme. Therefore, it is among the safest investment schemes available to individuals. The Public Provident Fund scheme offers guaranteed and risk-free returns.
Public Provident Fund (PPF) is one of the most preferred long-term investment instruments among the investors who have zero risk appetite. In this investment, the investor not only manages an assured return but also gets income tax exemption on investment up to Rs.1.5 lakh in a particular financial year. However, if the investor has exhausted his Rs. 1.5 lakh PPF investment limit and he still has surplus funds, he can open a PPF account in the name of his wife and contribute to her PPF account. Thus, he can double his PPF investment limit although he would be entitled to Income tax Exemption of Rs. 1.5 lakh only u/s 80 C of the Income Tax Act. The interest earned on the wife’s PPF account is clubbed with her husband’s income but the interest income from PPF is wholly exempt from Income Tax u/s 10(11) of the Income Tax Act and therefore it has no effect on the tax liability of the husband.
A parent is allowed to open a separate PPF account in the name of his/her minor child in addition to the account in his/her own name.HUFs are not allowed to open a PPF account. One is not allowed to open more than one PPF account in his or her name. If any depositor opens more than one PPF account, the second and subsequent accounts opened are treated as irregular/non- est.
A Public Provident Fund (PPF) matures in 15 years. PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Thus, there is flexibility of minimum investment of just Rs. 500/- per annum. Investments can be made in a lump sum or in a maximum of 12 instalments. After the expiry of 15 years, it is not mandatory for the depositor to close the PPF account. One can extend it indefinitely in blocks of five years. In case a PPF account holder decides to continue with fresh contributions, then he can withdraw up to 60% of the account balance at the beginning of each extended period – block of five years.
It is relevant that PPF account is automatically closed in the event of death of the subscriber and any amount deposited in such a PPF account after death of the subscriber will not be entitled to any interest.
It is important that partial withdrawals are permissible from the 6th financial year after the opening a PPF account. There is no tax on partial/premature withdrawals from the PPF account. However, only one partial withdrawal is allowed per financial year. One can withdraw 50% of the amount standing to his account.
It is apposite to refer to Section 9 of Public Provident Fund Act, 1968, which mandates that the amount standing in a PPF account of any person cannot be attached under any decree or order of the court to recover any debt or liability incurred by the account holder.
The Public Provident Fund (PPF) as of date earns 7.10 per cent interest which is more than the post office time deposits which fetch 5.5-6.7 per cent interest. The interest on public provident funds is compounded annually. The PPF interest is calculated monthly and credited at the end of the year.The saving bank interest around 4% whereas FD’s earn 5-5.5%. The 5 year National Savings Certificate earn around 6.8% interest whereas Kisan Vikas Patra yield interest of 6.9%. Thus we see that the interest of PPF is higher & safer.
Some people wish to compare PPF with LIC. The two are not comparable as they are two different investments and serve different needs. LIC takes care of the life risk & savings whereas PPF is a pure investment with higher returns. Insurance is for risk protection, while investment is for a secured future. Both are eligible for deduction u/s 80 C of the Income Tax Act. Maturity amounts are tax free in both PPF & LIC.
For long-term investors, PPF is a secure option. PPF is exempt-exempt-exempt-exempt (EEEE) investment. The investment is Exempt in the year of investment u/s 80 C of the Income Tax Act. The maturity amount is Exempt from Income Tax Act. The Interest accruing on the PPF account is Exempt u/s 10(11) of the Income Tax Act. Last but not the least, PPF amount is Exempt from attachment as mandated under Section 9 of Public Provident Fund Act, 1968.
The current PPF interest rate offered by the Government on PPF is 7.1% compounded annually. Supposing this rate remains the same, a deposit of Rs 1.5 lakh per year would fetch you nearly Rs 40 lakh in 15 years. Investing Rs 1.5 lakh/year in the PPF account for 20 years would result in a corpus of around Rs 66 lakh. If one continues to invest Rs 1.5 lakh/year for another five years, then PPF balance will reach approx. Rs 1 crore in 25 years.
This, it is indisputable that PPF is still the Best available investment instrument for reasons stated above.