Public Provident Fund (PPF): Guaranteed Returns, Better Invest than FD, Multiple Tax Benefits. These features make PPF a popular investment in India.
Public Provident Fund
Public Provident Fund Scheme is a Central Government scheme, framed under the PPF Act of 1968. Thus we can say PPF is a government-backed, long-term Small Savings Scheme. The Scheme offers an investment avenue with decent returns coupled with income tax benefits.
Despite its popularity, PPF has many aspects that are misunderstood. Let’s uncover them. 7 Things about PPF most people believe are true but aren’t.
No, Return is not Fixed
- PPF Invest is assured but not fixed.
- Reason: The Government decides PPF Interest every quarter. so it keeps changing.
- Example: The Current rate is 7.1%. but it was as low as 5% in 1960 and as high as 12% in 1990.
Maturity is not Exactly 15 Years
- PPF’S 15-Year maturity period doesn’t start from the account opening date. it is calculated from the end of the financial year in which you start investment.
- Say, your first contribution was on May 1, 2022. The maturity period will be calculated from March 31, 2023. and it will mature on April 1, 2038.
- so the maturity can be more than 15 years.
Maturity Doesn’t Mean You Cannot Withdraw Early
- Despite the Lock-in. you can make partial withdrawals in an emergency after the 6th Year.
- How Much: Either 50% of the balance at the end of the fourth financial year or 50% of the balance at the end of the preceding year, whichever is lower.
Not Just 15 Years, PPF Benefits can be Forever
When the account Matures, you have two options,
- Withdraw the entire corpus.
- You can also indefinitely extend it in blocks of five years.
You Cannot Invest as much as you Want
- There are rules for the minimum 7 maximum amount.
- Minimum Amount to Invest Rs. 500 in a Financial Year. else, the account becomes dormant.
- Maximum Amount to Invest Rs. 1.5 Lakh in a Financial Year. Contributions above this limit will not warn interest.
You May Not Get Interest for the Month you Invest
- PPF interest is compounded annually.
- but the calculation is done every month based on the lowest balance between the 5th and last day of every month.
- so, Invest before the 5th to earn interest for that month.
You Don’t Pay Tax on the Maturity Amount
- PPF is loaded with tax benefits.
- There is no tax on the interest you earn.
- plus, you don’t have to pay any tax on the withdrawals.
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