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  4. Why PPF investment is not just wise income tax saving option but much more…

Why PPF investment is not just wise income tax saving option but much more…

Whenever you talk of PPF or Public Provident Fund account, you think of saving income tax deductions. But here we try and explain to you how PPF investment should not just be once a year tax saving scheme.

Sarabjeet Kaur Edited by: Sarabjeet Kaur
New Delhi Updated on: March 06, 2020 8:39 IST
Why PPF investment is not just wise income tax saving

Why PPF investment is not just wise income tax saving option but much more…

Whenever you talk of PPF or Public Provident Fund account, you think of saving income tax deductions. But here we try and explain to you how PPF investment should not just be once a year tax saving scheme. A careful examination of facts and saving interest rates will reveal that PPF is a great saving option and, when done systematically, can answer a lot of your future money needs. To save your hard-earned money for a better future, there are many options to invest like fixed deposits, stock markets and so on. But share market investment depends on volatility and can spoil the charm of your investment. Whereas FDs are good to invest but interest earned are taxable. So, the best investment option for the long-term wealth creation is PPF (Public Provident Fund) along with tax-saving benefits. PPF is not only best for creating long-term wealth but it is also a tax safe investment that is backed by the government. 

Aptitudes of PPF:

  • Risk free investment
  • Tax saving long term investment to create good wealth
  • One can invest for up to 15 years and further can increase the investment for another five years
  • After six years of investment 50 per cent of the withdrawal can be done pre-maturely according to the rules. Rest of the money can be withdrawn after 15 years.
  • People who are not covered under any EPF which means they are not salaried and do their job as self-employed, small businessmen can invest in PPF to achieve their long-term goals. But how and how much to invest in PPF? We will guide you with some simple smart tips with the help of which one can create long term wealth.

Upsurge the limit: 

One can invest a minimum of Rs 500, which he or she can increase accordingly. The limits to invest in PPF under section 80C is 1.5 lakh per year. Don’t just invest to show the tax proof for returns. Invest only if you can have enough money to invest else don’t just put all your money into it. One can earn a huge profit with the help of an 8 percent compounding interest. Don’t just keep in mind the tax-saving option. One can invest apart from that also to get good returns without any risk. 

Invest for your child’s future:

To create wealth for your child’s education and other major goals, PPF is a very good option. A parent can open a PPF account in the name of their minor child, but as soon as they complete 18 years of age, the parent can open a separate account for them.

 
Allocate income:

  • One can avail several benefits if he or she opens a PPF account in the name of partner or a child.
  • Gift from your spouse can also be invested in PPF and can be clubbed with income of the sender.
  • If you deposit total 1.5 lakh every year in the PPF account till 15 years with an interest rate of 8%, then one would get Rs 43,60,517 lakh on maturity. Which is quite enough and good wealth creation for investors. One can do a minimum of Rs 500 of investment per month in the PPF account.

Contingency fund:

A financial emergency can happen anytime anywhere. But to save yourself from any financial crunch one can take out some of the cash from your PPF account. To withdraw money from your PPF account is not a good option, but in an emergency one can withdraw 50 per cent of the amount accordingly as per the rules.

Remember, personal loan always comes with higher rate of interests. So, always try to avoid taking PL. PPF is a descent and can be much cheaper mode during emergency but you can only withdraw after six years of financial investment. 

Some more actualities: 

The rate of interest of the PPF account is calculated annually and is credited in the end of the year. It is the best investment option for retirement, children’s education, long term goals like daughter’s marriage, buying home etc.…. So, invest whatever amount you feel like to put in PPF account monthly but it should not be less than 500rupees monthly and more than 1.5 lakh yearly.  The interest of the PPF is calculated on the minimum balance in the account between 5th and end of every month. So, it is important to deposit your monthly contribution before fifth of every month if you are contributing on a monthly basis to get interest according to the rules.

(The previous version of the copy had some miscalculations, therefore, the article has been updated)

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