The Public Provident Fund (PPF) is one of the most popular schemes in the country. Many salaried individuals tend to invest in the Public Provident Fund (PPF). Here are 5 reasons individuals should invest in the PPF.
1. Tax free returns
Returns from the Public Provident Fund are tax free in the hands of investors. There are very few instruments in the country, which offer tax free income to investors. For example, ULIP and tax free bonds are the other few instruments that offer tax free income.
Many individuals consider this as one of the biggest reasons to invest in the PPF. However, one thing to note is that the Public Provident Fund has a lock-in period. The scheme runs for a period of 15-years, though partial withdrawal is possible after a period of 7-years.
2. Tax exemption under Sec80C of the Income Tax
Tax exemption is available under Sec 80C of the Income Tax Act. So, one can invest a sum of Rs 1.5 lakhs each year and get a tax break. This is a big saving for those in the highest tax bracket.
There is also a loan facility that is available from the third year onwards. Another interesting feature is that the Public Provident Fund no attachment is possible under court decree order.
This is a good scheme for those looking at investing money at regular intervals, with interest amount being exempt as well as benefits under Sec80C.
3. Superior interest rate as compared to bank deposits
The Public Provident Fund offers a superior interest rate as compared to bank deposits. While bank deposits offer an interest rate around 6.5 per cent 7.3 per cent, the PPF offers individuals an interest rate of up to 7.9 per cent.
The government of course tends to revise the interest rate regularly. However, the trend in the past is that the rates of interest has always been superior to that of bank deposits.
Going ahead, we see the same trend being retained.
4. High on safety
This is probably one instrument that is very high on safety. It is backed by the government of India and hence there are no worries at all.
The deposits can be made in equal installments of 12-months or in a lumpsum. There are some disadvantages of the PPF as well. Among these include the lock-in period of 15 years, which could be pretty long. One cannot invest in the fund for a sum of more than Rs 1.5 lakhs. The government should increase the amount, as the same has not been raised for sometime now. All in all, a superior instrument when compared to most other funds.
5. Small deposits
One can open a PPF account with a small amount of Rs 100 only. This means it can be easily be opened by individuals with a small income. Each year, the minimum amount that needs to be deposited is Rs 500.
Another interesting feature is that the PPF can be transferred from one post office to the other. A nomination facility is also available under the Public Provident Fund.