When it comes to investments, PPF is one of the safest modes of investment among other forms of investment. But not everyone is clear about PPF and its schemes. Many people have doubts like, 'How to open a PPF account?', 'What are the scheme and the interest rate it gives?', and 'What does the Exempt-Exempt-Exempt law mean?'. This article answers all these important questions to help you decide if PPF is a worthy financial investment or not for you!
Public Provident Fund (PPF) is one of the most popular tax-saving schemes. Interest earned on deposits in the PPF account is not taxable. There are no tax deductions when you make a deposit towards PPF accounts. This makes the PPF Scheme one of the most tax-efficient instruments in India. It was launched to encourage savings among Indians in general, especially to encourage them to create a retirement corpus. Since PPF is a government-sponsored program, it is completely safe to invest in it. Market variations do not affect the investment. As a result, it provides guaranteed returns to meet many people’s needs for safe investments. Let’s see if Provident Fund is a good investment in this blog.
Benefits of PPF – Is Provident Fund a Good Investment?
PPF is a compelling option due to its tax advantages on investments and returns. Here are five advantages of PPF/importance of provident fund accounts that you should be aware of.
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Tenure Flexibility
When it comes to tenure, PPF’s tenure is flexible depending on the need of the individual. You have two options when an account reaches maturity: you can either withdraw the full balance and close the account, or you can keep it open for an additional five years with or without additional contributions. The extension may be made in increments of five years indefinitely.
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Partial Withdrawals
With a 15-year lock-in period, the PPF is a long-term investment plan. However, beginning with the fifth fiscal year following which the year the account is opened, partial withdrawals are permitted. For instance, if an account was started on March 15, 2014, withdrawals can be made starting with the fiscal year 2019–20.
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Loans against PPF
The PPF account holders are permitted to borrow money from their PPF account at a reasonable interest rate. You can avail loan between the third and sixth years after the account is opened. Investors who want to apply for short-term loans without pledging any collateral securities would particularly benefit from it.
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The Scheme and Interest Rate
People can deposit funds in PPF accounts for a fixed period of time to earn returns on their savings. The PPF interest rate for 2020-21 is 7.1%. The goal of the PPF schemes is to encourage savings across income classes, minimum deposit requirements are very low and affordable.
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Opening a PPF Account
You can open a PPF account at any nationalised, authorised bank and authorised branch/post office. You can open PPF accounts at specific private banks as well. You can open these accounts by filling out the required forms, submitting the relevant documents and depositing the minimum pay-in at such branches/offices that have been authorised for the same.
The government of India announces and sets the interest rates. Interest is calculated for a financial year according to the rate announced for the said year i.e., unlike bank FDs the rates are not fixed for the entire tenure of the holding. The maximum amount that can be deposited in the account is also subject to change.
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Exempt-Exempt-Exempt
At present, PPF is one of only three exempt-exempt-exempt (EEE) investment schemes available in India. The other two are the Employees’ Provident Fund (EPF) and Equity-Linked Savings Schemes (ELSS). While the last carries market risks, the other two are government-backed fixed-income schemes, where the rate of interest is determined every year by the government.
The EPF is offered to those employed in an organisation and comes with the employer’s share in (contribution to) an employee’s account. As an individual, you are eligible to open a PPF account. EEE means your contribution to the scheme (subject to a limit of ₹1.5 lakh a financial year) is exempt from tax, even as it earns interest throughout its term, as well as exempt from tax when withdrawn on maturity (including the interest earned). The accumulated balance over time in a PPF account: https://www.nsiindia.gov.in/ is exempt even from wealth tax.
Conclusion
To sum it up, PPF is one of the most excellent modes of investment to save for the future because the interest that is earned on its deposits is not taxable. Moreover, the deposits made into the PPF account over a financial year can be claimed as tax deductions, which reduces your tax liability.
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