When it comes to long-term investments, the Public Provident Fund (PPF) option is popular among many individuals because it comes with a sovereign guarantee along with the tax-saving form of investment for long-term goals like retirement. Although it doesn’t generally offer higher than fixed deposit (FD) returns, the PPF scheme comes power-packed with several benefits for the common man as anyone can start a PPF account with as little as Rs 500 and invest up to Rs 1.5 lakh in a financial year.
Whether one is a salaried person or has a small or big business or is self-employed or is a gig worker, they all look at PPF as a saving instrument that guarantees the safety of investment along with healthy compounded annual returns.
Triple tax exemption
PPF is among those investment products that offer the benefit of triple tax exemptions - exempt-exempt-exempt (EEE) status - that ultimately means that one can get tax benefit at the time of investment, accrual, and withdrawal.
Among the highest interest rates in fixed income products
When compared to the Employees’ Provident Fund (EPF), which currently offers the highest interest rate of 8.5 per cent among fixed-income products that have government backing and are only limited to salaried individuals, PPF can be used as an investment product for anyone.
The current interest rate on PPF is 7.1 per cent for the quarter ending June 30, 2021, which is higher than small savings schemes like the National Savings Certificate (NSC) and Post Office’s 5-year Time Deposit.
Floating rates when the interest rate is low
If one locks in their investment at a lower interest rate for a longer period, they could lose out when rates go up, however, the PPF scores in this condition come over products like 5-year tax-saving bank FD.
This is because the interest rate of PPF, unlike fixed deposits where the interest rate is fixed for the entire investment period, is floating which can change every quarter. However, it should also be noted that a floating rate can also be a double edge sword as it may hurt when the rate falls.
Power of compounding in long term
A PPF account matures in 15 years, after which one can either withdraw the entire amount and close the account or extend it for another five years that too with an option to make further contributions or not. In addition to this, the extension of five years can be done indefinitely.
Conservative investors’ tax haven
If a conservative investor is looking for tax savings with assured return and safety of investment, then PPF is among the best options for them as most of the large banks that offer 5.5 per cent or lower interest rate on 5-year tax saving FDs, the PPF’s rate of interest certainly comes with a good premium.
In addition to this, while Sukanya Samriddhi and Senior Citizen Savings Scheme offer a higher interest rate compared to PPF, these are usually meant for specific purposes and are limited to select investors.
Here are some of the most common benefits of the PPF:
1. A loan facility is available from the third financial year up to the sixth financial year.
2. Withdrawal is permissible every year from the seventh financial year.
3. Account matures on completion of fifteen complete financial years from the end of the year in which the account was opened.
4. After maturity, the account can be extended for any number for a block of 5 years with further deposits.
5. The account can be retained indefinitely without further deposit after maturity with the prevailing rate of interest.
6. The amount in the PPF account is not subject to attachment under any order or decree of a court of law.
7. Deposit qualifies for deduction under Section 80-C of IT Act.
8. Interest earned in the account is free from Income Tax under Section 10 of IT Act.
Also read: PPF scheme: Why it's still one of the best investment options
Also read: Expert lists down tax saving investment options for you