Public Provident Fund: Why should you have a PPF Account?

Investment

oi-Sneha

By Sneha B K

Updated: Monday, April 1, 2013, 14:15 [IST]

A Public Provident Fund(PPF) account is the most tax efficient vehicle launched by government of India. Investments made under this are deductible under Section 80C and interest earned is also tax-free.

A PPF account can be opened at Post office or with banks like ICICI and SBI. One can open online PPF account with ICICI Bank.

How to open PPF account?

-> The minimum amount to open an account is very less, that is Rs 500. Anyone can afford and invest in this avenue.
-> If you invest early in life, magic of compounding will be truly applicable here. And you will be left with lump some amount until your retirement.
-> Loans can be availed from third year to sixth year.
-> Accumulated amount, including interest, will be paid to the nominee in case of unfortunate death of the PPF account holder.
-> On completion of 15 years, you can further extend the tenure in a block of five years.
-> If you are investor and have invested in stocks or other riskier assets than investing in PPF can be helpful as it safe and secure investment option.
-> The other point is one can invest in many installments. However, the amount for tax rebate is not more than one lakh.

Let's site an example: If you are 25 years of age and you invest 10,000 each year, considering the present rate of interest at 8.8%. For the first year you will receive an amount of Rs 10,860 the same amount is invested again. At the end of 15 years if you invest Rs 10,000 every year at the end of the tenure you will receive an amount of Rs 3,09,010. Interest is absolutely tax free, while the amount invested qualifies for a tax rebate.

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