The Public Provident Fund or PPF is one of the most popular instruments in India. It's a highly efficient tax saving instrument, giving you tax benefits under SEC 80C as well as interest income being tax free. Here are a few disadvantages of the PPF.
You cannot withdraw from your PPF until the completion of seven years. This is a major drawback of the scheme. After the completion of 7 years you can withdraw just 50 per cent of the amount. Loans can be availed from the 3rd financial year excluding the year of deposit. So, if you feel you need large sums of money then consider other liquid instruments apart from the PPF.
Trusts should stay away
While earlier, Hindu Undivided Families (HUF) and Trusts were allowed to invest in PPF, that facility has now been withdrawn. HUFs and Trusts have to now look at other investment instruments.
No joint accounts allowed in a PPF
No joint accounts are allowed in PPF, unless you open the same with a minor. However, nominations are allowed. Being a very long term instrument, you must make a nomination in the PPF account. This will avoid hassles at a later stage, especially for the legal heir.
NRIs cannot open fresh accounts in PPF
NRIs are not allowed to open fresh accounts. However, if you had an account as a resident Indian and have now become an NRI you can continue to contribute to the PPF. Again, you will receive benefits like tax benefits.
PPF limit capped to Rs 1.5 lakh
The amount that you can invest in PPF every year is limited to Rs 1.5 lakh per year. The limit was raised in the Union Budget 2014-15 from Rs 1 lakh to Rs 1.5 lakh.