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Key highlights for investment in PPF
| Category | Details |
|---|---|
Rate of Interest | 7.1% annually |
Eligibility | Can be opened at any age by any resident Indian (HUFs and NRIs not allowed) |
Tenure | 15 years |
Extendable | Multiple blocks of 5 years |
Nomination | Facility available for maximum 4 nominations |
Tax Benefit | Tax deduction u/s 80C up to Rs. 1,50,000 |
Minimum Deposit amount | Rs. 500 |
Maximum deposit amount | Rs. 1,50,000 |
PPF as an Investment Option
While weighing PPF as an investment option, the end-decision depends on the risk-reward expectations of the investor along with the time frame of the investments. PPF was created to ensure a large retirement corpus so that the contributor has adequate funds at his disposal in old age. It is fundamentally suited for an individual who is risk-averse and has a long-term gradual investment perspective.
At the ongoing inflation rate, the adjusted rate of returns on PPF deposits may look meagre. For example, at the present inflation rate (CPI) which is hovering around 4%, the adjusted rate of return from PPF turns out to be just 4%.
Additionally, one could face challenges in terms of short-term liquidity with PPF as it has a very long-term maturity. PPF deposits have a minimum maturity period of 15 years. However, the government has allowed for premature closure of the PPF account on the grounds of medical emergency or education. The Rs. 1.5 lakh investment cap turnouts to be a serious limitation for a large investor.
PPF vs Other Investments
For a modern-day smart investor who is willing to take a moderate risk for decent returns, has multiple avenues of investments including mutual funds either directly or through SIPs or ELSS.
In the case of mutual fund investments, there may not be any short-term liquidity concerns in case of emergency and also the large investors can breathe easy as there is no investment cap with these options. Further, the historical charts suggest that these products have given a comparatively higher rate of returns than PPF.
In the end, it can be said that PPF is best suited for the long-term investor who is risk-averse and prefers the stability and safety of his investments than the net returns.
For investors looking for diversification of the portfolio, a part of the individual income can be invested in PPF. However, if you strongly believe that the economic growth of the country is going to sustain in the coming times then an aggressive strategy of investment in PPF may not be optimal in its outcome.
Important Things to Consider
One of the primary reasons why PPF is a popular investment choice is that it currently has EEE tax status that is, principal contributed, interest earned and maturity amount is exempt from tax. However, while investing in PPF one should keep in mind that one cannot invest more than the maximum permissible limit which is currently Rs 1.5 lakh.
If you have a PPF account in your name as well as a separate PPF account in the name of your minor child, then the maximum amount that can be deposited for both the accounts cannot exceed Rs 1.5 lakh in a single financial year.
If you have linked your PPF account with one of your money goals such as child's education or marriage etc., then remember you can accumulate more by depositing money before the fifth of a month.
About Investment in PPF
Public Provident Fund (PPF) is one of the most popular investment options for creating a long-term retirement fund. It carries low risk, moderate returns, and added tax benefits and these make PPF an attractive option for investment.
PPF has a 7.1% rate of assured returns and it fares at par with nominal returns paid by bank fixed deposits (FDs), the additional tax benefits subject to the investment cap of Rs. 1,50,000 offered by PPF makes it look better than the other forms of investments. Also, the PPF deposits are government-guaranteed which makes it safer than financial instruments like FD’s.
FAQs: Investment on PPF
1. What is the Limit of Subscription to a PPF account?
An individual on his behalf and behalf of a minor can subscribe to an amount not less than Rs. 500 and not more than Rs. 1,50,000 in a financial year. The ceiling on deposits is Rs. 1,50,000 in a financial year at present, is both for individual self-account and account opened on behalf of a minor, both taken together.
2. How many times can I make deposits in a PPF account during a year?
You can deposit money in your PPF account either in a lump sum or in instalments which need not be of the same amount. However, the total number of deposits during a financial year can’t exceed twelve.
3. Am I required to deposit money in my PPF account every year? What if I don’t?
Yes, a minimum deposit of Rs. 500 is required every year. If you don’t, then your account will become inoperative.
4. What is the PPF lock-in period?
Investments made to a PPF account have a lock-in period of 15 years. However, individuals can make a partial withdrawal from the PPF account after 5 years from the date of opening the account.
5. Can I withdraw PPF after 5 years?
The Government has amended the PPF scheme and propagated some positive changes regarding the withdrawal of balance from the account. You can now withdraw the whole amount and close your PPF after 5-years.