Investing in ancestral property v/s PPF: You have to choose
What's the story
In India, the dilemma of ensuring your family's financial future doesn't revolve around whether you should invest in ancestral property or open a Public Provident Fund (PPF) account.
Both are excellent tools for building wealth, each with its own unique benefits.
This piece does a deep dive into both, helping you make an informed decision.
Basics
Understanding ancestral property
Ancestral property is property that has been inherited from ancestors, i.e., passed down from one generation to another within a family.
It is subject to complex laws that differ based on religion, and can often be a source of disputes among family members.
That said, if handled properly, ancestral property can be a major asset, appreciating over time and offering significant returns without any further investment on your part.
PPF perks
The appeal of PPF investment
The Public Provident Fund (PPF) is a long-term savings scheme backed by the Indian government.
It provides a lucrative interest rate of approximately 7% to 8%, exempted from tax under Section 80C of the Income Tax Act.
With a lock-in period of 15 years, it encourages long-term savings.
It permits partial withdrawals after six years, offering flexibility to investors.
Analysis
Comparing returns and risks
Although ancestral property can provide significant returns due to appreciation in real estate values, it carries risks including legal disputes and maintenance costs.
Conversely, PPF provides stable returns with low risk as it is government-backed.
However, the fixed interest rate limits the potential for higher returns compared to real estate investments.
Cash flow
Liquidity considerations
Liquidity refers to how quickly an asset can be converted into cash without affecting its market price.
PPF accounts provide high liquidity after six years, permitting loans or partial withdrawals under certain circumstances.
Conversely, ancestral property has low liquidity. Disposing of real estate is time-consuming and may not guarantee the anticipated prices because of market fluctuations.
Decision time
Making an informed choice
Choosing between ancestral property and a Public Provident Fund account depends on one's financial goals, risk tolerance, and liquidity requirements.
- Risk-averse investors might prefer a Public Provident Fund for its guaranteed returns, though with lower potential for profit.
- On the other hand, those willing to navigate legal complexities and maintenance expenses may find ancestral property more rewarding, offering significant appreciation potential over the long term.