Here are other some propositions that favour investment in PPFs and NSCs despite the emergence of new fixed income investment options.
1. Tax-free interest and principal amount: Investment in a PPF account help you earn steady returns over time and moreover such returns attract no tax-liability or are tax-free in the hands of investors. Further, not only the interest realized but also the principal amount invested and proceeds are also free from any taxation concerns.
2. Compounding effect: Through investment in PPF, an individual is able to realize the benefits of compounding which is done on an annual basis that thus multiples the corpus by a substantial amount
3. Safest among other fixed income instruments: Owing to the sovereign nature, PPF instrument is the safest investment option. As other products in the realm are also issued by companies who may possibly default in some instances.
The interest rate on PPF investment which is revised every year is currently fetching a return of 8.7%. So, considering the different pros of the investment while also factoring in the issues in respect of premature withdrawal as it comes with a 15-year lock in, PPF is still a good bet for investors aiming at building a substantial corpus. Know how you avail of a loan on your PPF account.
Also, for realizing maximum returns from your PPF account, you should deposit the amount before the 5th of every month as the government offers interest on the minimum amount between 5th and 30th or 31st of every month. Even putting your bet on the investment early in the year shall enable you to realize interest on the investment for the entire year.
So, PPF emerges as the only instrument providing dual benefits of a tax free return and investment in the scheme also allow a tax deduction upto a maximum of Rs. 1,00,000 under Section 80C.
National Saving Certificate or NSC: The traditional fixed income instrument that is also a favourite option with many of our elders also helps to save tax in contrast to bank term deposits and even term deposit of the Post Office.
Specifically a 5-year NSC i.e. currently fetching a high 8.5% provides a high post-taxation return depending on your income tax slab as the initial interest earned on the investment is taken as a reinvestment and only the last year's interest attracts tax liability. And, such reinvestment can be claimed under section 80C by filing a return and showing interest income on 5-year NSC in the head 'income from other sources'.
So, instead of waiting for the year end to plan your tax-savings for the financial year. You can do so at the start of the financial year and reduce your financial burden for such investments over the course.