What are the benefits of PPF as a saving instrument  

Public Provident Fund (PPF) is a long-term saving scheme that is subsequently repaid at maturity together with any accrued interest. The PPF program was established in 1968 by the Ministry of Finance's National Savings Institute with the purpose of helping people save money each year for retirement. 

Rate of interest

The Central Government reviews the interest rate on PPF accounts on a quarterly basis. Historically, the PPF interest rate has been between 7.6 per cent and 8 per cent. It tends to fluctuate somewhat higher or lower in response to prevailing economic conditions. 

For the first quarter of fiscal year 2022-23, the current interest rate on PPF accounts is 7.1 percent compounded annually (April-June). But it is interesting to note that when compared to the similar fixed deposit (FD) rates offered by various banks, PPF offers its subscribers a higher rate of interest. 

Time period

Subscribers have a 15-year period during which they can withdraw the tax-exempt amount. Subscribers may, however, ask for an extension to receive an additional five years of active investments. Additionally, they have the option of continuing their contributions or not. 

Tax benefits

Section 80C of the Income Tax Act of 1961 exempts PPF from taxation. It provides investors to a tax deduction of up to Rs.1.5 lakh on their investment in the scheme. PPFs follow the EEE (Exempt-Exempt-Exempt) taxation scheme, which implies that both the interest and the maturity amount are tax-free. 

Security

As a government-sponsored savings system, subscribers benefit from the security afforded by investments in PPFs. These investments are more secure and there is theoretically no chance of defaults. 

Loans against PPF

Subscribers may borrow against their PPF account at an agreed-upon interest rate. The loan benefit is available from the third to sixth year following account opening. It is especially advantageous for investors seeking short-term loans without pledging any security. 

The maximum loan amount available against PPF accounts is 25 per cent of the balance at the end of the second fiscal year before the year in which the loan is requested. The loan balance may be repaid over a 36-month period beginning on the first day of the month following the month in which the loan was obtained. 

Also read: PPF withdrawal rules: 5 account rules you need to know

Also read: PPF interest rate 2022: Know tax benefit, withdrawal rules, how to calculate interest, and more

Also watch: Is the humble fixed deposit now a loss-making proposition? What are the alternatives?