Navigating the perks of the Public Provident Fund (PPF)
The Public Provident Fund (PPF) scheme is a popular long-term investment option in India, offering tax benefits, security, and attractive interest rates. It is a government-backed savings scheme that encourages individuals to save regularly in a financial year. Understanding the benefits and how to make the most out of PPF can significantly impact your savings journey.
Understanding PPF interest rates
The Government of India sets the PPF interest rates every quarter. Currently, the rate is about 7.1%, which is significantly higher than that of regular savings accounts. This interest is compounded annually, which means your investment benefits from exponential growth over time through the power of compounding. This mechanism ensures that your savings increase substantially year after year.
Tax benefits unveiled
One of the most compelling reasons to invest in a Public Provident Fund is its EEE (Exempt-Exempt-Exempt) tax status. The amount you invest (up to ₹150,000 annually), the interest earned, and the maturity proceeds are all exempt from tax under Section 80C of the Income Tax Act. This makes the Public Provident Fund an excellent tool for saving tax while accumulating wealth.
The lock-in period explained
Public Provident Fund accounts have a 15-year lock-in period, prohibiting the withdrawal of the full investment before this period ends. From the seventh year, partial withdrawals are permitted under certain conditions. This long lock-in duration is designed to encourage investors to save for long-term goals such as retirement or a child's education, fostering financial discipline and growth.
Loan against PPF account
Between the third and sixth financial year after opening a PPF account, holders can take a loan. This loan can amount to up to 25% of the balance at the end of the two years immediately before applying. This feature proves beneficial during financial emergencies, as it allows investors to access funds without disrupting their long-term savings trajectory.
Extending your PPF account beyond 15 years
After the initial 15 years, you can extend your PPF account in five-year blocks indefinitely, with or without additional contributions. If you opt not to contribute after extension, the account still earns interest on the balance. This option remains available until you decide to close the account or resume contributions, ensuring continued growth of your savings.
