Pros And Cons Of PPF


The Public Provident Fund (PPF) is one of the most popular long-term investments to more efficiently reduce taxes while still earning interest.

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How does PF registration work for you?

PF is a great contingency or retirement fund for an employee. Registering for PF through a simpleprocess requires an assortment of documents from the business and the employee.

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PF Registration is mandatory for all companies that have more than 20 employees

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Get it done without any complications

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Public Provident Fund (PPF) - An Overview

PPF is an investment plan that offers tax redemption and complies with Section 80C of the Income Tax Act. Any person may open an account in their name at any time during their lifetime at any nationalised bank, government banks, or post office. A guardian who is older than the juvenile can use the account and get benefits on their behalf if the minor has an EPF registration account. The strategy not only reduces the amount of tax due on the money deposited, but it also exempts the interest and maturity amount from taxes.

Objective of PPF:

The Ministry of Finance implemented this programme with the primary goal of encouraging people to invest their meagre savings by providing an investment choice with favourable interest rates and tax advantages. Since it is a programme that the Central Government has completely insured, it offers the investors the necessary safety and anonymity.

Deposits and interest rates of PPF

Every three months, the Indian government's ministry of finance releases the interest rate for Provident Fund Registration accounts. Currently, the interest rate is 8.0% as of October 2018. The interest rates as of 2022 is 7.1% annually. A long-term investment option that provides an alluring rate of interest and returns on the amount invested is the Public Provident Fund (PPF) programme. The returns and interest received are not subject to income tax.

Duration of maturity

The lock-in period for PPF accounts is 15 years, although at the investor's option, the duration of the account may be increased by up to one or more blocks of 5 years or cancelled once it has reached maturity. Investors are presented with three choices after the account reaches maturity:

  • Withdrawal of all funds from the account
  • Extending the subscription without payments, or allowing any amount to be taken once every fiscal year regardless of the amount contributed
  • If the investor does nothing after the maturity time has passed, this option's default method automatically activates
  • Extension with a contribution, or adding more funds, limits the investor to a maximum withdrawal of 60% of the account balance throughout the course of the extended period of five years
  • The deposit may also be prematurely withdrawn, however only up to 50% of the deposit may be withdrawn beginning with the 7th fiscal year of the 15-year lock-in period.

Pro’s of PPF

  • Given that it is supported by the government at large, it offers guaranteed profits
  • With a minimum subscription of ₹500, the investment can be made as a lump payment or in monthly instalments, giving the investor a lot of flexibility
  • The deposit may also be asserted for the refund in agreement with Section 80C of the Income Tax Filing Act
  • Taxes are not due on either the interest or the maturity amount earned
  • PPF account loans are obtainable from the third to the sixth fiscal year
  • Once the maturity period has passed, the subscribers can choose to extend or terminate the tenure
  • Starting with the seventh year, partial withdrawal is permitted
  • Housewives and minors may be permitted to open PPF accounts.

Con’s of PPF

The PPF offers benefits and drawbacks when compared to alternative investment options including tax-saving fixed deposits and ELSS mutual funds. Even though PPF is the most popular long-term investing option, all available options must be carefully examined before making a decision.

  • There is a lengthy lock-in period of 15 years
  • An open account cannot be opened by HUFs or NRIs
  • The maximum payment that can be deposited into a PPF account is ₹1.5 lakh
  • No liquidity exists.

Why Vakilsearch?

A PPF account is appropriate for making long-term investments with a percentage of your income. For an estimate of how compound interest will affect your fund contribution, visit the PPF maturity calculator on Vakilsearch. Investments should always start with low-risk options before moving on to riskier ones, and PPF is unquestionably one of the safest possibilities accessible. It is highly recommended to get in touch with our accountants for all PPF accounts. The team will provide complete support and complete the whole process without much delay.

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