7.1% is the PPF Deposit rate for FY2020-21 (sep 2020), lowest in it’s history since 1986. This government guaranteed investment was launched in 1968 by ministry of finance for Indian residents. One of the popular tax saving instrument under section 80C, Public Provident Fund, is facing the wrath of low interest regime in India. So is PPF still a good tax saving option? Is PPF better than ELSS Mutual Fund? Can you invest in PPF Online? Is PPF better than Tax saving ELSS, let us have a quick low down on this investment instrument. Let’s address each question one by one.
What is PPF and how to invest in it? PPF is a fully government guaranteed investment option for resident Indians. One can open a PPF account in Public Sector Bank (PSB) like – State Bank of India, Bank of Baroda, Canara Bank etc also in private sector Bank like ICICI Bank, HDFC Bank, Axis Bank etc and designated Post Offices. PPF account can be opened with a minimum sum of Rs. 500. It has a maturity period of 15 years. One can transfer the account to other branch but not to any other Bank/ post office during its tenure. One person can open only one PPF account in own name at a time, however, one can open separate PPF account in the name of wife/husband or minor child (contribution cumulatively can be upto Rs. 1.5 lakhs for availing tax deduction). In a financial year one can invest between Rs. 500 to Rs.1 lakh 50 thousand according to Income tax law (Income tax act Section 80C) in India.
PPF account can be opened by visiting Bank branch with documents like Pan card and Aadhaar Card, also you can invest in PPF online through internet Banking. You can make direct transfer in PPF account from other Bank account through internet Banking.
Features of PPF Account
Though it has a fixed maturity of 15 years, incase of medical emergency, one can avail loan after 3 years and upto 6th year. One can make partial withdrawal beginning 7th year, however amount will be capped to 50% of 4th year balance. One can also close the PPF account after 5 years if needed. It has nomination option, one can nominate two person. However, to enjoy the compounding benefit, its recommended not to make partial withdrawals.
Benefits of Public Provident Fund account
It offers higher interest rate than bank fixed deposits. This is the only investment option which offers complete tax exemption under Section 80C, no conditions attached, during investment, accumulation and maturity withdrawal. One can make flexible deposit in this account every year, with deposit requirement of only Rs. 500 in a year and can deposit upto Rs. 1.5 lakh depending on investment requirements. This is a good long term debt option, it can be used for long term wealth creation because of the compounding effect and tax benefits.
How many time you can invest in PPF in a year?
One can make multiple investments and of any sum starting Rs. 500. PPF account remains active even if someone misses payment in some financial year.
Is PPF it better than NPS? Should you buy PPF?
These two financial products should not be compared. NPS has higher investment horizon (more than 20 years depending on entry age) as one can realise benefit after retirement, and it is designed to be used like a pension scheme, with partial withdrawal benefit on maturity, while PPF has fixed tenure of 15 years, can be extended for 5 more years but it has lumpsum withdrawal on maturity. NPS and PPF should not be mutually exclusive, one should have exposure in both as long term wealth creation/ funding retirement kitty.
Is PPF better than tax saving mutual Fund (ELSS)? How much to invest?
PPF is a high interest paying fixed income product which enjoys EEE tax benefit. ELSS enjoys minimum taxation of 10% on realised profit (above Rs. 1 lakh) every financial year. PPF gives a predicted return with compounding benefit. ELSS being a equity product has a potential of higher return over long term period, but all ELSS scheme doesn’t provide same returns. So, under section 80C – one should ideally divide investment in 4 options – ELSS, PPF, Term protection plan (Life insurance) and ELSS to maximise the benefits .
Is PPF Better the Fixed deposits?
PPF enjoys full tax benefits under incom tax section 80C is a long term product, enjoys higher return compared to Bank fixed deposits but, it is not useful if sudden money requirement arise. Fixed deposit interest are fully taxable (above Rs.10,000) as per tax slabs, but useful for emergency funds, can be withdrawn whenever needed. Also one can take over draft facility of 80% of the FD amount with only 1-2% interest rate more than fd rate. PPF partial withdrawal and loan facility available but not easy to avail. So, for short term requirement upto 1-2 years, FD/ liquid mutual fund is a good option. But if your PPF maturity is near, say between 1-2 years, you can invest more money in PPF as you ll get all returns tax free with higher interest income.
Fixed deposit is an one time investment, but PPF is designed like a bank account which has limited withdrawal option and only keeps accumulating upto maturity.
If you have further queries on PPF investment option, write in the comment box. You can post your queries in debashree.ad@gmail.com
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