The Public Provident Fund (PPF) was established in 1968 with the goal of organizing small savings in the form of investment with a return. It’s also known as a savings-cumulative-tax savings investment vehicle since it allows you to create a retirement fund while lowering your annual taxes. Anyone seeking for a risk-free way to save money on taxes and receive assured profits may consider opening a PPF account.
PPF is commonly regarded as a long-term investment vehicle for retirement savings. It is a tax-deferred investment that allows an investor to save money on their taxes. They usually have a 15-year maturity term, according to tax and investment experts, and the Department of Economic Affairs has kept the PPF interest rate at 7.1 percent for April to June 2020. As a result, PPF account holders must be aware of the following information that is crucial from the standpoint of an investor.
1. PPFs are a Safe Investment
You will be able to avoid the stress of financial hazards by investing in a PPF. It is a government-backed plan in which the government of India sets and pays the interest. As a result of the government’s guarantee, it is a secure investment choice for all Indian citizens.
2. Returns are Guaranteed but Rate of Returns Fluctuates
The returns on investment are assured but not set because PPF is a government-backed plan. The government sets the rate of interest for PPF every quarter. PPF interest rates have decreased from 12 percent to 7 percent in recent years, according to historical returns. For Q3 of FY 2020-21 (October – December), the PPF interest rate is set at 7.1 percent.
3. There’s a 15-year Lock-in Period
PPF is best suited for investors who want to put their money in for the long haul. It has a 15-year maturity term, after which only partial withdrawals are permitted after 5 years of continuous contributions. Investors can prolong the tenure by 5 years after the lock-in period (15 years) has ended.
4. You Can take Loans Against Your PPF Balance
Another wonderful advantage of PPF is that it allows you to invest in real estate. You can borrow against your PPF balance in an emergency. The loan facility, on the other hand, is accessible from the third to the sixth financial year after the account is opened. A second loan may only be secured after the first loan has been paid off.
5. Your PPF Account Can Become Inactive
An investor must make a yearly investment of at least Rs. 500. A maximum of Rs.1.5 lakh can be invested in a PPF account in a single year. If the investor does not pay the required annual contribution, the account will become dormant. To reactivate the account, submit a written request accompanied with a Rs.50 fee for each year the account has been dormant.
PPF is a good option for people who want to invest for a long time in a government-backed program. It is especially beneficial to self-employed individuals and small company owners who are not covered by the EPF. Individuals who wish to begin saving while simultaneously benefiting from tax-free investments can also invest in the Public Provident Fund.