The Public Provident Fund (PPF) has remained an extremely popular scheme over the years. In fact, with the ability now to open accounts with banks, it has become increasingly easy to open these set of accounts. Bank deposits over the last few quarters have lost their attractiveness as their interest rates are very low. Here are 4 reasons why the PPF is much better than bank deposits:
Attractive on interest rates
The Public Provident Fund is far better in terms of interest rates than banks. At the moment, the PPF is offering an interest rate of 7.1 per cent, which no large commercial bank in the country is offering. State Bank of India is offering an interest rate of nearly 5 to 5.5 per cent on its fixed deposits.
In terms of interest rates, only the small finance banks can match the interest rates. The only difference being that in the case of the Public Provident Fund the interest rate is compounded every quarter, while in the case of banks the interest is compounded every year.
Two types of tax benefits
In terms of tax benefits there is no investment scheme that is better than the PPF. The fund offers tax benefits under SEC80C of the Income Tax Act. So, investment up to a sum of Rs 1.5 lakhs is completely exempted from tax. Apart from this, the Public Provident Fund also offers exemption on the interest income. So, the interest earned on the balances in the PPF account does not attract any tax.
Very few investments in the country match this and the Unit Linked Insurance Plan is one category, where the returns are not taxed, and the other is the tax free bonds. In all other investments, the interest income is taxable.
Helps to build long term corpus
The Public Provident Fund being is a 15-year scheme that tends to help build a long-term corpus. Though withdrawal is possible only after five years, there are some restrictions on the withdrawals. In short, the fund helps investors to save for the long term and thus build a long term corpus. The easy access to funds in a bank and the ability to easily break fixed deposits, may sometime not be in the best interest of investors. Therefore, it maybe a good idea to consider the PPF if you are looking at building a corpus over the more long term.
Small amounts of deposits
One can deposit a minimum amount of Rs 500 in the PPF account every financial year. This is a good amount for small investors to begin with. In case you have not deposited a sum of Rs 500 in a financial year, the account becomes discontinued. The discontinued account can be revived by the depositor before maturity of the account by depositing a minimum subscription (i.e. Rs. 500) + Rs. 50 s default fee for each defaulted year. The total deposit in a year, shall be inclusive of deposits made in respect of years of default of previous financial years.
All in all, the PPF is a good investment to consider, only if you are looking at long-term investment.