For years, the Public Provident Fund (PPF) has been a popular investment tool for millions of Indians seeking secure government-sponsored products. PPF is part of a small savings scheme that is not only government-backed, but also offers more attractive and reliable returns for investors.
With growing interest in equities, investment trusts and cryptocurrencies, most young investors are moving away from products based on small savings schemes. There are many benefits to investing in PPF, especially given the recent volatility of the stock market, which investors can definitely consider.
Before delving into why investors should consider financial products, let’s take a look at the capabilities of PPF-
The PPF holding period is 15 years and can be extended in blocks of 5 years thereafter.
You can start investing in PPF with a minimum of Rs500 and a maximum of Rs1.5Lakh. You can make your investment in installments or in one lump sum. Remember that you need to invest at least Rs500 each year to keep your account active.
Resident Indians can invest in PPF, but HUF and NRI cannot. However, existing PPF investments by NRI residents are valid for 15 years and cannot be renewed after that. Minors can also have a PPF account, but parents must operate it.
It comes to the most important part for investors. Investing in PPF earns an annual interest rate of 7.1%, which is compounded each year and paid on March 31st of each year. The government revise these interest rates quarterly, but at this point, revenues from PPFs are higher than revenues from other small savings schemes such as national savings certificates and postal deposits. .. Interest of 7.1% is calculated on the minimum balance between the end and the last day of the 5th day of every month. Therefore, we recommend investing between April 1st and April 5th each year. If you choose to invest in monthly installments, invest by the 5th of each month.
So why is PPF the preferred form of investment for so many Indians?
In addition to being a government-guaranteed product, the fact that PPF is not linked to the stock market provides a safe haven for conservative investors.
Another advantage is the availability of loans for PPF investments. However, you can only get a loan from the beginning of the third year to the end of the sixth year of investment. The interest on such loans is 1% per year. If you take a loan from your PPF account, you need to keep in mind that there is no interest income from your PPF investment until the loan is repaid.
Under Section 80C of the Income Tax Act, all donations to the PPF are exempt from tax at the maximum. ￡15,000 rupees every year. In addition, both annual interest accrued and maturity at the end of 15 years are tax exempt. Therefore, tax exemptions are applied at the time of investment, interest accrual, and maturity, and the PPF is an EEE (exemption, exemption, exemption) investment.
Another big plus that many investors are unaware of is that PPF accounts are not subject to court orders or legal proceedings with respect to outstanding debt / liability. This means that if a person with unpaid debt dies, the PPF investment cannot be tied to the settlement of membership fees. “The balance of the PPF account is sent directly to the surviving family,” explains Nissis Baldebudas, a registered investment adviser and founder of Shree Financial.
Therefore, while guaranteed returns and tax incentives are good reasons to invest in PPF, the biggest drawback to investing in PPF is the 15-year lock-in period. However, in certain situations, such as life-threatening health conditions or funding higher education, partial withdrawals or early closures can be made five years after the initial investment.
“Given the strengths and weaknesses of investing in PPF, this investment option, based on a small savings scheme, has no guaranteed savings for long-term goals and is also subject to investment plans such as employee provisions. Recommended for all business owners and professionals who shouldn’t. A fund that helps paid people invest in the long term. Some conservative and risk-averse investors are preparing for long-term goals. , Because it is a low-risk investment with guaranteed profits, it will benefit from PPFs, “says Baldevdas.
If you decide to invest in PPF, understand how to invest. You can access the post office or bank to start your investment, or start the entire process online from the portal of your bank of choice.
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Public Provident Fund-Tax Saving Options During Stock Market Volatility
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