PPF is definitely one of my personal favourite risk-free investment avenue. It is also a popular form of investment and almost everyone knows what is PPF.

But how many of us really understand the required nuances to appreciate the advantages of opening a PPF account and regularly save ?? Normally, we open a PPF account on the insistance of our Auditor or Tax Advisor. Then we tend to forget all about it till the time of tax filing. Then, in case we fall short of deductions available under Section 80C, we invest the differential amount.

There are a few basic things that we need to understand about PPF. It can be one of our long term risk-free, tax-free investment tool in our portfolio. So, here we go

  • Indian citizens can open a PPF Account in their name
  • Each person can open ONLY ONE account either in Post Office or a Bank
  • Initial lock-in period of 15 years and end of the same, option to extend it by 5 years indefinitely
  • Partial liquidity available by way of withdrawal (50% from sixth year onwards) or loan (25% from third year onwards till 6th year)
  • Minimum 1 contribution in a year & Rs. 500; Maximum 12 contributions in a year & Rs. 1.5Lakhs
  • Interest though credited annually is calculated monthly
  • Interest rate is linked to 10-year government bond yield and fixed every quarter
  • Ideal date for contribution is before 5th of every month
  • Contributions are eligible for tax deduction under Sec 80C (upto Rs. 1.5Lakhs)
  • Interest earned is tax-free and just needs to be reported during filing
  • Withdrawals are also tax-free
  • Corpus and interest on maturity also does not attract any tax

Link below in case you want to know the complete history of PPF, its interest rates over the years and benefits.

https://en.wikipedia.org/wiki/Public_Provident_Fund_(India)

Conclusion

PPF definitely needs to be a part of one’s portfolio. It is a debt-oriented, risk-free and tax efficient scheme. However, returns are nominal and may not yield high returns adjusted for inflation. But, it is definitely less volatile than equity schemes and provides the required stability in one’s portfolio.

So, do open a PPF account if you still have not. If you do have an account, but have neglected investing, do invest regularly. The power of compunding over 15 years period will definitely make it a worthwhile option for you !!