Public Provident Fund (PPF) is a small savings scheme backed by the government. PPF has been a popular investment option for decades and is still preferred by investors. In 1968, to encourage people to start saving for their retirement, PPF scheme was initiated. It is a twin-benefit scheme. First, the government pays compound interest on PPF balance and it also saves.
PPF account can be opened in the post offices or any authorised bank. PPF scheme matures after 15 years, and after that, an investor can stretch the time period in blocks of five years. The PPF account can be closed before the maturity date in case of educational or medical emergency.
Interest on PPF is revised quarterly by the government. Interest rate for the current quarter is at 7.10%. Every month, the interest on PPF is credited to the account.
Minimum amount to be deposited in a year is ₹500 and maximum is Rs 1.5 lakh. The amount can be deposited in one shot or in installments. Pankaj Mathpal, Founder, Optima Money Managers says, “if you are depositing monthly in you PPF a/c then make sure that the amount is deposited in first five days of the month. Only then will the amount earn interest for the month. Also, if your financial condition permits, try to make your payments for a year in one go. This way you need not worry every month and interest will be calculated accordingly.”
You can get tax benefit of 1.5 lakh under section 80C of the Income-Tax Act. Even the returns are tax-free.
The maturity period under PPF scheme is of 15 years, but, the amount can be withdrawn after five years as well. It is pertinent to note that only 50% of the balance can be withdrawn.
PPF is a good savings option for your retirement and it gives better returns than bank FDs as well. Since PPF is a government backed scheme, investing in PPF is safe. Also, PPF can be a good long-term investment option to diversify your portfolio.
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