In India, the Public Provident Fund, or PPF, has been one of the most well-liked investing choices. PPF is quite popular for a variety of reasons, such as tax benefits on the amount invested, tax-free returns, and guaranteed returns. The Public Provident Fund will be covered in this blog, along with its tax advantages, maturity and extension policies, qualifying requirements, interest rates and computations, contribution requirements, and more. A comprehensive comprehension of these fundamental characteristics can aid subscribers in optimizing the advantages that come with PPF investments.
The Public Provident Fund, or PPF, is what?
Public Provident Funds, or PPFs, are government-sponsored savings plans that offer a number of advantages. It is one of the most well-liked and tax-efficient savings plans in India, with the main goals being to promote saving and give people financial security. It is a 15-year investment option with a significant maturity period. It provides rewards that are assured. Every quarter, the government reviews its interest rate. This implies that the PPF interest rate is subject to quarterly changes by the government. It now provides a 7.1% interest rate.
Importance of PPF
For those who are risk averse, PPF is a great alternative because it carries almost no risk. Additionally, for other investors who wish to take advantage of tax exemptions while making long-term investments.
It can assist people in accumulating a sizeable corpus, which can be utilized for a variety of things, including housing, education for children, retirement preparation, and so forth. Because individuals can deduct up to Rs 1.5 lakh under Section 80C, it also helps them save money on taxes. In addition, there are no taxes on interest received or maturity proceeds. To put it briefly, anyone who wish to invest, save, and prepare for their financial future while taking advantage of tax breaks and the assurance of government-backed security should consider opening a PPF account.
Features of the PPF account
A well-liked long-term savings plan in India is the PPF account, which offers a number of advantages like adjustable deposit amounts, fixed tenure, and tax benefits. Let’s examine a few of them in more detail:
- Investment tenure: A 15-year lockin is included with PPF. The maturity date, though, may be later than fifteen years. Why? Considering that a PPF account’s 15-year maturity period begins at the end of the fiscal year in which the initial investment was made. Additionally, a PPF account may be further extended with or without contributions in intervals of five years. As a result, you can keep getting PPF benefits for another twenty, twenty-five, thirty, and so forth.
- Risk factor: This fixed-return program is insured by the government. As a result, people view it as a risk-free investment. Nomination: You can add one or more individuals to your account as nominees using the nomination tool that is also included. Deposit methods: You can make both online and offline deposits into a PPF account. Cash, checks, or demand drafts (DD) can be deposited offline. You can immediately transfer money while using the online option using net banking or mobile banking. Deposit frequency: The frequency of deposits is not restricted. Any amount of installments may be made. To keep your PPF active, you must make at least one donation each year.
- Opening balance: A minimum of Rs 100 is required to open a PPF account. To keep it operational, you must deposit Rs 500 every fiscal year. Investment limitations: For PPF, a minimum investment of Rs 500 is required each fiscal year. In terms of maximum amount, you are able to deposit up to Rs 1.5 lakh every fiscal year.
Benefits of PPF?
Here are five advantages of PPF accounts that you should be aware of:
- Guaranteed returns without risk: The Indian government supports the Public Provident Fund. Therefore, the fact that PPF accounts are completely risk-free is one of their biggest advantages. The government also guarantees the returns. Furthermore, not even a court order to settle debts can seize the money in your account.
- Many PPF tax benefits: One of the best things about a PPF is that it is one of the few investments in India that has the exempt-exempt-exempt (EEE) tax status. Your taxable income is reduced by the amount you invest up to Rs. 1,50,000, the interest you earn is tax-free, and the amount you receive at maturity after 15 years is tax-free. It is therefore among the investments with the best tax efficiency.
- You have a lot of flexibility with the PPF when it comes to the amount you can invest. Small savings, good returns. You only need Rs. 100 to start an account. You can invest as little as Rs. 500 and as much as Rs. 1,50,000 annually. These investments can be made as a flat sum or up to 12 installments. As of June 30, 2018, the PPF provides an annual compound interest rate of 7.6%.
- Liquidity with loan and partial withdrawal options: Despite the 15-year lock-in period of the PPF, you have a lot of ways to access the money in your account. Between the third and the sixth year, you can take out a loan (up to 25% of the sum available at the end of the two years prior to the year in which you apply for the loan). The loan has a 36-month repayment period and an interest rate that is 2% greater than your income. You will be able to take partial withdrawals from your account starting in the seventh year. In addition to making partial withdrawals, you have the option to shut your PPF account early if you require the money for urgent medical care or further study.
- Tenure flexibility: You can choose to take the full amount from your PPF account upon its maturity after 15 years, or you can choose to extend the tenure by five-year increments.