How To?

How to Choose the Best PPF Scheme?

Personal Finance

There are two types of investors in this world: those who love to take risks and those who avoid them. Risk-taking investors have a wide variety of investment options open to them. However, investors who want to avoid taking risks often feel that they have limited investing options.

If you want to invest without taking risks and are looking to explore your options, you’re at the right place! One of the options that provides inflation-beating returns is Public Provident Funds (PPF). Let’s understand what a Public Provident Fund (PPF) is and how you can choose the best PPF scheme.

What is a Public Provident Fund?

Public Provident Funds (PPFs) are a popular long-term investment option in India that offer tax benefits and have the potential for moderate returns. It is a government-backed savings scheme that allows you to save money in the long term while also receiving the benefits of tax deductions. When you are considering investing in a PPF scheme, there are several factors that you need to consider before you decide what is best suited for your needs.

Compare different options

Before investing in a PPF scheme, it is important to compare different providers. You can invest in a PPF scheme through a bank or the Post Office. It is advisable to inquire and compare the details in order to determine the flexibility and service components offered by different banks.

Being aware of interest rates for PPF

The current interest rate on PPF schemes is 7.1% per year. This rate is determined by the government of India. The interest rate on PPF is fixed by the government for each quarter and is not linked to the market, which means that it is not affected by changes in the stock market. This makes PPF a relatively safe and stable investment option.

Knowing your investment horizon

PPF schemes have a term of 15 years, during which time you can keep adding money to your account. After the 15-year period ends, you can again extend the term by 5 years at a time, for as long as you desire. Keep in mind your long-term goals and choose a strategy that matches those.

It is worth noting that you can withdraw a partial amount of money from your PPF account after 6 years, which would only be up to 50% of your balance amount. PPF schemes also allow you to close the fund, so you can withdraw the full amount and close the fund. However, it is allowed only for specific reasons, such as serious illness or higher education.

Eligibility criteria to open a PPF account

PPF schemes have certain eligibility criteria that must be met in order to open an account.

  • PPF accounts can be opened only if you are a resident of India and have completed 18 years of age.
  • Non-resident Indians (NRIs) are not eligible to open PPF accounts.
  • Minors (individuals under the age of 18) can open PPF accounts, but they must be handled by their parents or legal guardians until the minor attains the age of 18 years.
  • You can have only one PPF account in your name. It is important to ensure that you meet the eligibility requirements before applying for a PPF scheme.

Flexibility of PPF schemes

Some PPF schemes offer more flexibility in terms of the amount and frequency of contributions that you can make. The minimum contribution that you need to make to your PPF account is Rs. 500 per year while the maximum contribution is Rs. 1.5 lakhs per year. You can make contributions to your PPF account on a monthly, quarterly, or annual basis, depending on your preferences and financial situation. You can decide if you want to make a small contribution every month or if you want to make a large contribution every year.

Credibility of the institution

The PPF scheme is a government-backed savings scheme, which is why it is considered a safe investment option. Since the scheme is backed by the government, it is less risky than other investment options.

While there is safety of capital in PPF, you should invest in banks that are credible. This helps you avoid hassles later on.

Benefits of PPF schemes

Now that you know how to choose the most appropriate PPF scheme, it is equally important that you understand the benefits of investing in PPF. Some of these benefits are:

  • Inflation-beating return: The returns provided by the PPF beat inflation in the long run. While the inflation rate is around 6% per annum, the PPF interest rate is 7.1% per annum. It is important that you invest in avenues that beat the inflation rate. 
  • Assured returns: PPF is one of the safest investment options because it is backed by the government of India. If you prefer avoiding investment in risky avenues but still want to earn moderate-to-high returns, then PPF schemes are an ideal investment option for you. 
  • Tax benefits: Investments in PPF schemes are eligible for deduction under the Income Tax Act, 1961. Section 80C of the Act allows a deduction of up to Rs. 1.50 lakhs for each financial year. Furthermore, the interest earned on your PPF income is also exempt under the Act; it would, however, need to be reported in your tax returns.

In a nutshell

As investors are moving toward safer investment options, PPF is becoming the preferred option among them. Very few investment options provide a combination of assured returns and low risk, and PPF is one of them. If you follow the above steps, then you can shortlist the best PPF scheme that aligns with your investment goals. For more such information, stay tuned with Piramal Housing Finance.