Gone are the days when the only investment options available were fixed deposits, gold and life insurance plans. Those may have sufficed for generations past, but in today’s diverse and vibrant financial ecosystem, Indian investors, especially the younger cadre, have multiple options to choose from, each offering customized solutions to meet individual savings goals.
So how does the humble PPF account of days of yore fit into any modern day, discerning investor’s financial portfolio?
1.Fixed and guaranteed returns : PPF accounts offer interest as return on investments. The rates are fixed every financial year by the Ministry of Finance and are generally at very competitive rates. The interest rate on PPF deposits currently stands at 8.7% p.a., applicable for the financial year 2015 - 2016. This is quite attractive in the face of falling FD rates. Returns on these deposits are assured i.e. the interest earned is payable at maturity along with the principal and, unlike shares in the stock market or mutual fund investments, are not subject to market conditions.
2.Safe and low risk investment : The Public Provident Fund Scheme (PPF) is run by the government and, hence, runs the most minimal risk of default. Considering PPF deposits are long-term investments, capital protection, which is central to the scheme, coupled with guaranteed returns, make it a very low risk investment. This is one of the most suitable channels of investment to offset medium to high risk investments in an investor’s portfolio.
3.Tax free investments : Exempt - Exempt - Exempt (EEE) is the tax status PPF deposit accounts enjoy. This means an investor’s principal deposit is tax deductible (currently up to Rs.1.5 lakhs a year U/S 80C). It also means that these investments are exempt from wealth tax. Also, unlike bank fixed deposits, all interest earned on these deposits are tax free. This is one of the most appealing reasons considering limited tax advantageous options available to investors. Not only does it allow for efficient tax and financial planning but also helps investors effectively build a long-term corpus, primarily for retirement.
4.Easily accessible and transferable : PPF account can be opened at post offices and bank branches across the country. An account once opened can be transferred very easily between a post office and bank or between two branches of a post office or bank, anywhere in the country. Besides, PPF accounts can also be opened and accessed online. This provides absolute convenience in operating these accounts.
5.Flexibility : These deposit accounts offer numerous options to depositors.
a.Investment limits : Although deposits are required to be made every year to keep the account active, the investment limits range from as low as Rs.500 and currently go as high as Rs.1.5 lakhs a year.
b.Investment mode : Also, deposits can be made online or by approaching the relevant branch.
c.Liquidity : In terms of liquidity, PPF account holders have the option to withdraw or take loans against funds held in their account, according to the rules of the scheme.
d.Account management : Accounts are transferable from one location to another which makes it easy for depositors to manage their accounts.
e.Renewal : These accounts can be renewed on maturity with the option of making fresh deposits or earning interest on funds accrued over the 15 year tenure without making fresh deposits.
f.Eligibility : Any resident Indian can open a PPF account in their name if over the age of 18 years. If under the age of 18 years, the account can be opened and operated by guardians in the name of the minor. This account is meant for the employed, unemployed, self-employed, old or young.
PPF accounts were primarily devised as a social security scheme by the government to help people save efficiently for retirement or old age. However, this scheme has evolved to meet different long-term savings goals such as saving for a child’s higher education, marriage or even to build a corpus that can be passed on to future generations. Investing in a PPF account has numerous benefits when aligned with an investor’s overall savings goal.
The scheme has stood the test of time to remain relevant, popular and competitive amidst the numerous investment choices on offer today. This and the other reasons stated above stand testimony to why the PPF scheme should be considered a sound saving option.