Everything you should know about Public Provident Fund (PPF)
Introduced in 1968 by the Ministry of Finance, Public Provident Fund (PPF) is one of the most popular investment options in India. PPF is a government-backed, low-risk scheme that offers guaranteed returns, tax advantages on the investment amount, and tax-exempt returns. Millions of Indians make PPF investments to achieve their long-term financial goals. However, the returns from PPF are significantly lower than other financial investments such as mutual funds online.
Here is everything you should know about Public Provident Fund:
What is a PPF?
PPF is a voluntary, non-market linked, long-term investment scheme backed by the central government that generates assured returns (typically between 7-8%). PPF schemes have a mandatory lock-in period of 15 years, extendable up to another five years. However, after the completion of seven years, you can withdraw money from your PPF account (up to 50% of the PPF balance). You can also take a loan against your PPF account balance.
The least investment amount in a PPF is Rs. 500, whereas the maximum deposit amount is Rs. 1.5 lakhs. If you do not maintain the minimum balance in your PPF account, the account becomes dormant. You will pay a penalty of Rs. 50 to activate the account. Alternatively, if you invest more than Rs. 1.5 lakh in your PPF account, the amount above Rs. 1.5 lakh will not generate any returns.
PPF scheme enjoys the exempt-exempt-exempt (EEE) status, where the contribution, interest earned, and maturity amount are all exempt from taxes. The PPF deposits up to Rs. 1.5 lakh are excused from taxes under Section 80C.
Who can invest in a PPF?
- An Indian resident at least 18 years old can open a PPF account. There is no upper age limit to open the PPF account.
- Parents or guardians can open a PPF account for minors (children below 18 years). The collective limit for PPF accounts of both parents/guardians and minors is Rs. 1.5 lakh annually. Grandparents cannot open a PPF account in their grandchildren’s name.
- Non-resident Indians are not eligible to open a PPF account. However, individuals who gained their NRI status after opening a PPF account can continue to deposit money in their PPF account until maturity. However, they do not have an option to extend the maturity term.
What are the advantages of a PPF account?
Here are some of the most relevant benefits of a PPF account:
- PPF helps promote financial discipline in investors. You invest a sum for 15 years with a fixed seven-year lock-in period.
- PPF is a beneficial retirement investment option, enabling you to create a financial cushion for your future.
- The triple tax advantages, in terms of deposits, interest-earned and withdrawals, make PPF a better choice than bank FDs.
- PPF is a government-backed scheme with low-risk default. It is a safe long-term investment vehicle.
PPFs are a beneficial investment option when compared with bank FDs. However, the returns from the PPF account are comparatively lower than mutual funds online. Further, mutual fund online investments have a short maturity period, no maximum investment limit, and tax advantages under Section 80C. You can start a mutual fund online with a SIP (Systematic Investment Plan) of only Rs. 500.
Use the Tata Capital Moneyfy app to start investing in mutual funds online.