What is PPF?
Public Provident Fund(PPF) is a retirement fund that gives you a lifelong return on your deposits. Understanding what PPF is, is as easy as learning to use a reliable tenure calculator. But still many people don’t know about it so we will clarify it here. PPF is a special type of pension plan that has been introduced in India to offer income tax benefits based on small savings.
The Public Provident Fund (PPF) was set up by the Government of India in 1968 to help meet their commitment toward social security for people working in the private sector, and public sector, including government servants and employees of statutory corporations. A new PPF scheme introduced in 2019 revoked the PPF scheme of 2019
Who is eligible for PPF?
Any individual who is a resident of India can open an account under PPF and receive tax-free returns. Since 2018, NRIs or non-resident Indians are no longer permitted to open new PPF accounts. However, if an NRI already has a PPF account then the account can continue for 15 years maturity period.
Benefits of the PPF instrument
- Low risk
The return is guaranteed by the government, which means that you don’t have to worry about your investment amount going down or up. There are no risks involved in this plan, so you can sleep well at night knowing that your money will just sit there and grow over time.
- Guaranteed returns since backed by the government
You can also count on the fact that your investments will be protected by the government as long as they are invested in a PPF account. The interest rate is fixed and cannot go below 7.1% per annum (which is quite high), while the amount deposited cannot exceed Rs 1.5 lakh per person per year.
- Stable returns even when downswing of the business cycle
PPF investments have been traditionally popular among salaried class employees because it provides moderate to high returns even during downturns in the business cycle. This is because the interest earned on PPF deposits is tax-free and can be used to meet all financial obligations such as salary, housing rent and education fees. This makes it an ideal option for people who are looking at investing in fixed deposits but want to benefit from a stable return on their investment.
- Diversified portfolio
You don’t need to be a financial genius to understand the importance of diversifying your investment portfolio. You might think that everyone knows this, but unfortunately, there are still a lot of investors that concentrate and rely just a little bit too much on one asset class.
Diversification is one of the key benefits of PPF. If you have a savings account with some fixed deposits and term deposits, it would be difficult to get insured income from the same company again and again in the future because they may change the rate of interest. With the PPF scheme, there are more options which make your investment portfolio diversified.
- Easy to contribute
A public provident fund (PPF) is a deferred/contributory type of plan which makes it very easy for employers to contribute. There are no lock-in period and exit restrictions in case you quit your present job, or even if your employer declares bankruptcy or restructures their business. All you need is a ppf calculator post office specific or bank-specific and you can figure out anytime how much money you have saved and how much you want to save more. You can visit Khatabook to learn more about these calculators. So yes, we are talking about the most common and time-tested retirement vehicle for salaried employees in India.