What is PPF? PPF is a public provident fund, a long-term savings system introduced by the central government. It provides various tax benefits on contributions and withdrawals after the lock-in period.
This is useful to generate the security of old age income to self-employed individuals and those who work in the unorganized sector. Read the post to learn more about the PPF account.
PPF at glance:
To understand the PPF system in brief, you must look at the following features, including loan tenure, eligibility, investments, interest, etc.
- Eligibility
The eligibility criteria to open the PPF account is to belong to Indian residency. Therefore, if you want to become a PPF account holder, you should be an Indian resident.
- Entry age
There is no age specified for the opening of the PPF account. Children under the age of 10 years can also open their PPF account.
- Investments
The minimum investment needed for a PPF account is Rs 500 per annum. The maximum investment needed to open a PPF account is 1.5 lakh per annum. You can easily make investments in lump sum amounts of money or multiple investment form.
- Interest
The interest rate for the PPF account is 7.10 %, compounded annually. This rate of interest is calculated for the calendar month on less balance in your account between the end of the month and the closure of the fifth day. You can use the PPF calculator to calculate the interest on it.
- Tenure
The tenure of PPF is 15 years. After 15 years, the PPF account is extended with or without a deposit in five years block at a time. There are no restrictions applied on extensions unit.
- Exit option
The PPF account premature closure is impermissible except in the case of account holder death. When the five years from the end of the year is complete, the money needs for the treatment of critical illness.
Risks and investment objectives
The main goal of investing in a PPF account is to access tax deductions on deposit accounts, guaranteed returns, and tax-free withdrawals. In addition, the savings kept in the PPF account are considered a risk-free process due to the government backing.
Alternatives and suitability
- Best fits for risk-averse investors who seek returns by investing in long-term goals for 15 years or more
- Not fit for investors who can predict the few risks by investing in linked investments that produce good returns in 15 years
- Alternatives are the tax saver equity mutual funds or direct stock investing.
Capital and inflation protection
The PPF account capital is always protected because the system is supported by the central government. It makes this account risk-free from guaranteed returns. The PPF account is no protection in terms of inflation, which means whether the inflation is above returns guaranteed or not.
If the rate of inflation is below to guaranteed rate, it can manage the positive real return rate.
Conclusion
The PPF account enjoys great tax benefits for contributions up to 1.5 lakhs. The maturity and interest process are exempt from tax in the case of a PPF account.
