How will you benefit from investing early in mutual funds?
What is the right way to invest in mutual funds? How will you benefit from starting investment in mutual funds early? How is compounding beneficial in SIP?
Financial year 2020-21 is about to end and the rush to make investments for tax-saving purpose is underway. After March 31, people will not be able to invest for the current financial year.
Everyone is on the lookout for investment instruments which deliver good returns.
One such instrument is Public Provident Fund (PPF) which can be opened at post offices and banks and runs for 15 years.
Here we take a look at five benefits PPF offers:
Only behind EPF in terms of returns
Earlier, FD was considered the best savings instrument in terms of returns. But, if we talk about returns, then at this time EPF provides the best returns among savings instruments at 8.5%. This fund is meant for private and government employees. Started for the common public, Public Provident Fund subscribers get 7.1% interest. Interest rates are fixed on a quarterly basis and are compounded.
Benefits of tax exemption
Those who invest in PPF get the benefit of tax exemption. Up to a maximum of Rs 1.5 lakh can be claimed as deduction under Section 80C of the Income Tax Act. The most important thing about PPF is that the money earned on interest and maturity earned in the scheme remains completely tax free.
Meets Security Guarantee
PPF is a government-backed scheme. Therefore, there is a complete guarantee of security on the investment of the scheme. If you want to invest in a scheme with tax exemption and good returns, then PPF is best for you. Higher returns than PPF are available only in Sukanya Samriddhi Yojana and Senior Citizen Schemes.
Interest rate reviewed on a quarterly basis
Investing in PPF is also beneficial because, its interest rate changes on a quarterly basis. Meaning if you get less interest in a quarter, it may be that the interest rate will be higher in the next quarter. Also, interest is calculated on compounding basis.
Good returns
Most people believe in running the investment for a long period. The advantage of this is that your regular investment helps you in preparing a big fund. For example, if someone has invested Rs 1 lakh in a PPF account, then in 15 years, your investment will be Rs 15,00,000. Interest on this will come to around Rs 12,12,139. That means, with the investment in the scheme, you will have a total deposit of Rs 27,12,139.