For small investors, the Public Provident Fund (PPF) is one of the most trusted investment avenues. It is a 'must have' in the investment portfolio. The recent enhancement of limit and increase in interest rates has made this instrument even more attractive. The PPF offers safety, good returns, and tax savings . The interest earned on these deposits is taxfree. In the present volatile situation, where many stocks and funds are yielding negative returns, it is better to invest your hardearned money in safer bets such as the PPF. Due to the recent increase in interest rates on small savings schemes, the biggest beneficiaries are PPF investors. The interest rate is being increased from eight to 8.6 percent. Moreover, the investment limit is being increased from the present Rs 70,000 to Rs 1 lakh. For investors who do not want to take risks or dabble in the stock markets, the PPF is the best option. Although the PPF is a preferred option of conservative investors, in the present-day market scenario, even aggressive investors may like to opt for this avenue. The interest rate will be announced in the beginning of every financial year. The tenure of a PPF account is 15 years. After the initial 15 years, you can keep extending the deposit for five years at a time. In case a person starts contributing Rs 1 lakh every year, he can build a tax-free corpus of about Rs 31 lakhs over 15 years, if the interest rate remains 8.6 percent. Even considering a marginal decrease or increase in the interest rate (of say between 8-9 percent range) the corpus may vary between Rs 29 lakhs and Rs 32 lakhs. With the enhanced investment limit from Rs 70,000 to Rs 1 lakh, you can earn an additional tax-free interest of Rs 2,580. On an investment of Rs 1 lakh, you can get a tax deduction of Rs 30,000 (if you are in the 30 percent tax bracket). The interest earned will be 8.6 percent on Rs 1 lakh, i.e. Rs 8,600. So, considering the tax benefit under Section 80C, the effective interest return translates to almost 12.29 percent, and fully secured. PPF is a voluntary contribution by an individual. On maturity, the proceeds received are tax-free . Being a statutory scheme of the central government, it is fully secured. The interest is compounded annually. The deposit can be in a lump sum or in convenient instalments , but not more than 12 instalments in a year. An account in which no deposits are made is treated as a discontinued account. A discontinued account can be activated by paying the minimum deposit along with a default fee for each defaulted year. A PPF account can be opened by an individual or a minor through a guardian. Those who are contributing to the GPF Fund or EDF account can also open a PPF account. No age is prescribed for opening a PPF account. There is a facility of withdrawal in the seventh year of the account, subject to a limit of 50 percent of the amount at credit, in the preceding three years. Thereafter, one withdrawal in every year is permissible . Premature closure of a PPF account is not permissible except in case of death. Source;ET |
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