Public Provident Fund - A tax saving option in times of equity market volatility
For years, Public Provident Fund (PPF) has been a popular investment tool for millions of Indians who want a safe, government backed product. PPF is a part of the Small Savings Schemes that are not only backed by the government but also provide assured returns that make them more appealing to investors.
Amid the increased interest in stocks, mutual funds and crypto, most young investors have steered away from instruments under the Small Savings Schemes. With the many advantages of investing in PPF, investors can definitely consider especially given the recent volatility in equity markets.
Before we delve in to the reasons why investors must consider the instrument, let’s look at the features of PPF –
PPF has a tenure of 15 years, after which it can be extended in blocks of 5 years.
You can start investing in PPF, with a minimum of Rs500 and a maximum of Rs1.5 Lakh. Investments can be made in installments or in a lump sum. Remember, you must invest at least Rs500 every year to keep the account active.
Resident Indians can invest in PPF whereas HUFs and NRIs cannot. However an existing PPF investment made by a resident who becomes an NRI will remain operational for the 15-year tenure, after which it cannot be renewed. A minor can also have a PPF account but parents must operate it.
Coming to the part that matters the most to investors. Investments in PPF earn 7.1% in interest per annum, compounded annually and payable on 31 March every year. While the government revises these rates quarterly, at the moment the returns from PPF are higher than that from other Small Savings Schemes like the National Savings Certificate and Post Office deposits. The interest of 7.1% is calculated on the lowest balance between the close of the fifth day and the last day of every month. That is why it is advisable to invest between 1st April and 5th April every year and if you have chosen to invest in monthly installments, invest before the 5th of every month.
So what makes PPF a preferred mode of investment for so many Indians?
In addition to being a product that has government guarantee, the fact that PPF is not linked to the equity market, makes it a safe haven for conservative investors.
