BUILD YOUR WEALTH WITH PUBLIC PROVIDENT FUND(PPF) : THE SAFE PATH TO LONG-TERM SAVINGS

Public Provident Fund is India’s most popular long term secured investment scheme which is launched by the Government of India in the year 1968.  It’s aims to mobilize small savings and offers attractive return and it is also offers tax benefit. If you are looking for secured financial future or build a retirement corpus PPF is one of the best option.

In this blog I am discussing all about Public Provident fund  , it’s benefits and how it is fit for your financial strategies .

What is PPF (Public Provident Fund) ?

PPF is a log term saving scheme backed by the Government of India. The interest which is earn in this scheme is fixed by the Government of India. It is a good investment scheme for persons who do not want to take risk. It offers guaranteed return and safety for the principal.

Features of PPF

i)            Eligibility – Every individual who are citizen of India can open a PPF account , a minor also can open a PPF account by their guardian. However a Non resident Indians (NRIs) cannot open a PPF Account in India.

ii)         Maximum and Minimum amount to Invest : Minimum amount to invest into your PPF account in a financial year is Rs.500(Rupees five hundred) and maximum amount to invest in this scheme in a financial year is Rs. 1,50,000(Rupees one lakh fifty thousand ).

Contribution can be made in year is lump sump or in a maximum of 12 installments in a financial year.

iii)       Lock in period :  Lock in period of PPF account is 5 years , after competition of five year you can withdraw the total amount or you  can extend it up to another 5 years with or without contribution.

iv)       Rate of interest : Rate of interest of PPF is revised every quarter by The Government of India. Historically the rate of interest in between 7% to 8% . The interest is compounded annually , making it a great scheme for long term wealth creation.

v)         Tax benefit : The amount you invest in the PPF account is tax free up to Rs. 1,50,000  under section 80C of the Income Tax Act , 1961 , and the interest which you have earn from this scheme is also exempted from Income Tax.

It is also mention here that the maturity amount (including interest) is also tax free.

vi)        Risk free investment : This scheme is backed by the Government of India and it is completely safe and zero risk of losing the principal and interest amount.

Compare PPF to other investment options :

When talking about long term investment PPF offers safety investment and also provide tax benefit . Now lets compare it with other investment options :

i)          Fixed Deposit : Return of fixed deposit is lower than the PPF and in case of fixed deposit principal amount is guaranteed by the Government is up to Rs. 5,00,000 and interest earned from Fixed deposit is taxable.

ii)         Equity : Invest in stocks offers higher return but it has also higher risk due to market volatility.

If you are a risk taker then go for Stocks otherwise go for PPF.

iii)     National pension scheme(NPS) : It is another scheme which is backed by The Government of India but it does not provide tax free maturity as PPF.

iv)     Partial withdrawals and loan against PPF : PPF allows partial withdrawal and loan during tenure of PPF which provides liquidity in times of need.

i)          Partial withdrawal : PPF allows withdrawal from seventh year onwards. Withdrawal limit is 50% of the balance at the end of the fourth preceding year or the year immediately before the withdrawal , whichever is earlier.

ii)        Loans : PPF offers loan between the third and sixth year. The amount of loan can be 25% of the balance at the end of the second year preceding the year in which the loan is applied for. The rate of interest of these loan is lower than the standard Bank loans.

 How to open a PPF account ?

You can open a PPF account either online or offline through a designated Bank or Post Office. 

a)  Documents required : Following documents are required to  open Aadhaar Card , PAN Card for proof of identity

b)  Aadhaar card for proof of address.

c)  Recent colour passport size photo

d)  A filled PPF application form

i)          Opening procedure : Visit the Bank or official website if doing it online and submit all necessary documents along with a cheque or Bank transfer for initial deposit.

Once the account is open you will receive the passbook or online credentials for digital one.

How to maximize your return ?

i)          Early Contribution : The interest is calculated on the lowest balance between 5^th and the last day of each month  , so, try to deposit before 5^th day of every month.

ii)        Full utilize of limit U/S 80C of the Income Tax Act , 1961 : Contribute the maximum limit of Rs. 1,50,000 is not only save tax but also accumulate a substantial corpus over the long time.

iii)     Extend after 15 years : If you do not need the amount after maturity extend the period which help you to continue earning interest.

Conclusion : Public Provident Fund remains reliable and tax efficient investment option . Individuals  who looking to build a secured financial future PPF is best option for them. PPF is baked by Government of India so, it is the most secured option to invest. For retirement benefit or make diversification of your investment PPF is great option to invest.

With power of compounding interest makes PPF  a great option   to invest for create your wealth. PPF can help you build a sizable corpus over the long time.