PPF Benefits: Advantages & Tax Benefits of Investing in a PPF Account

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A Public Provident Fund scheme (PPF) is a long-term investment instrument that helps you growth your wealth as well as save on annual taxes. Moreover, being a government-backed and a non-market-linked investment, it provides stable returns and tax benefits on investment.

Other benefits of PPF, such as withdrawal and loan facility, make it a compelling investment choice. Read on to learn more about PPF account benefits and reasons to invest in it.

What is Public Provident Fund?

PPF is an investment scheme that enables you to secure your long-term future with stable and high returns. The scheme encourages small savings in a periodic manner and wealth accumulation in the long term.

A common misconception among many is assuming PPF and EPF (Employee Provident Fund) to be identical. The key difference is that any individual, who is an Indian citizen, can open a PPF account regardless of their employment status.

However, only salaried employees of companies registered under the EPF Act can have an EPF account. Moreover, PPF has a tenor of 15 years, while you can close the EPF account when you permanently quit your job or get transferred to a different company until retirement.

Introduced in 1968, the PPF scheme has seen an increasing number of deposits in the last few years. This is primarily due to the PPF account benefits one can enjoy. The benefits of PPF account range from accumulating a hefty corpus to availing tax benefits.

Additionally, the current interest rate on PPF is 7.10% per annum, which allows you to earn better returns from a low-risk instrument.

Benefits of PPF Investment

PPF Tax Exemption

PPF Tax Exemption is one of the prime benefits of PPF that makes it an effective investment option. The Public Provident Fund scheme has an EEE tax status.

This means that your investment amount, interest earned, and maturity amount are all eligible for tax exemption. The PPF income tax benefit for all three facets is as per the limits mentioned in the Income Tax Act.

Partial Withdrawal

Although Public Provident Fund schemes have a lock-in period of 15 years, partial withdrawal facility is available from the seventh year. Keep in mind that such withdrawals can be made only once in a given financial year.

Loan Against PPF

You can take a loan of up to 25% of the amount available at the end of the second financial year. This loan facility from the second year is one of the major PPF account benefits you can enjoy.

The maximum repayment tenure of the loan is 36 months. If you repay the entire loan before the sixth year begins, you can apply for a second loan. Alternatively, you can avail loan between the third and sixth financial year at an additional 2% interest rate.

Secured Returns with Low Risk

One of the main features of PPF is that it is a government-backed and non-market-linked investment scheme. As such, it is low risk, and this is one of the main advantages of Public Provident Fund account.

The low-risk perk not only gives security for your investment amount but also for the interest earnings you accumulate throughout the tenor. This way, you can secure your current investment and retirement corpus without stress.

Minimum investment amount

Since PPF was introduced with the sole aim to encourage small savings, the minimum investment is set to an amount that can cater to a majority of the Indian population. The minimum investment amount of PPF is ₹500, and the maximum is ₹1,50,000 for a year.

No wonder a minimal amount to start an investment is one of the major PPF account advantages. Moreover, you can invest in PPF monthly or annually, enabling you to secure your financial future without affecting your current finances.

Pension Tool

The Public Provident Fund scheme can be used as a pension tool if you refrain from making withdrawals and extend the tenor. Even if you withdraw, try to keep the principal amount intact and only withdraw your interest.

This way, you can receive the rate of interest as a pension every year. Furthermore, the PPF tax benefit makes it better than other pension schemes where you may have to pay taxes as per the income tax slab.

Transparency in Calculation

The PPF amount is compounded annually and the rate of interest is declared every quarter. Based on this, your returns are calculated as an average of the declared rate of interest and the rate of interest at the time of your initial investment.

This, coupled with the fact that you can use a digital PPF calculator, helps you make a well-informed decision. The tool is simple, easy, and quick, requiring you to enter only basic investment details.

Investment Security

With PPF being a government-backed scheme, there is an assurance in the safety of the investment. As PPF is unaffected by market fluctuations, this is a great option, especially if you are a risk-averse investor.

Extension of Tenor

Public Provident Fund schemes provide flexibility of tenor. After the completion of the 15-year tenor, you can choose to withdraw the entire amount or extend the tenor for a block of five years. You may also decide whether to continue contributing or receive returns on the existing deposit amount.

Features of PPF Investment

Public Provident Fund benefits stem from the investment-friendly features of the scheme. These features make it easier and more convenient for investors to secure their financial future while not burdening their current finances.

Some of the top features of PPF are:

Any Indian citizen, except NRIs and HUFs, can open a PPF account
An individual can open a PPF account on behalf of a minor
Minimum investment amount of ₹500 for account opening and a maximum amount up to ₹1.5 Lakhs
Facility to pay monthly instalments or 1 annual deposit
Multiple payment avenues such as cash, online, cheque, DD, to start PPF investment
Low risk to secure stable returns throughout the investment tenor
Loan facility to meet unexpected needs with ease
Nomination facility under PPF death benefits provides financial security in case of untimely demise of the account holder

Why should you invest in a PPF?

Investing in a Public Provident Fund scheme can prove to be quite advantageous due to its umpteen benefits. Here are a few reasons why you should invest in a PPF:

Minimal investment amount of ₹500
Returns independent of market volatility
PPF tax benefit under Section 80 C of the 1961 Income Tax Act
Availability of loans against PPF
Partial withdrawal facility from the start of the seventh financial year
Indefinite extension facility of PPF account in blocks of five years
Long-term investment of up to 15 years
Compounding rate of interest
Portfolio diversification

Who should invest in a PPF?

If you are someone that is reluctant to take any risks and looking for a safe investment option, the Public Provident Fund scheme is an ideal solution for you. Every Indian citizen can open a PPF account and gain benefits from it.

Other features such as PPF tax exemption, investment security and transparency in calculation make it a safe investment option. With a PPF account, you can accrue benefits and rest assured that your finances are well protected.

Additionally, senior citizens can utilise it as a pension tool to gain regular income from the comfort of their homes. Youngsters can use it to diversify their portfolios and build wealth for retirement.

With the multitude of benefits of PPF, this is an excellent investment avenue for investors of all age groups and profiles. Like PPFs, there are various other investment schemes for risk-averse investors.

One such investment plan is fixed deposits offering handsome returns at a chosen tenor and predetermined rate of interest. To know some of the top FD rates from leading issuers, visit Bajaj Markets.

Disclaimer

The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort.

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products.

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Monthly Interest on FD

Yes, you can withdraw from your PPF account after 7 years. However, this is possible only under specific conditions and carries a penalty.

You can claim the PPF tax benefit as per the Income Tax Act. Under section 80C, you can claim a maximum deduction of up to ₹1,50,000. Note that this limit includes all other investment options eligible for tax benefit under the section.

Yes, you can reactivate an inactive PPF account. To do so, you will have to submit a written request, pay the fine and minimum annual deposit amount for all the inactive years.

Yes, you can transfer the account from one branch/office to another.