The Pros and Cons of Investing in PPF
Public Provident Fund or PPF as it is popularly known is one of the most popular investments in India as it provides a safe investing option and has a decent 8% rate of interest which is compounded annually.
It is considered the safest investment since it guarantees a secure future lump sum of money.
Also,as it falls under Section 80C,it provides investors with tax benefit as well.
The amount you get after maturity will not be taxable,so the 8% interest rate works out to be higher.
Let's assume that your taxable income is Rs.
3 lacs and you invest Rs.
50,000,your taxable income falls to Rs.
2,50,000.
This turns out to the main benefit associated with a PPF account.
Earlier the rate of interest was as higher as 12 % but it has been steadily falling since then,so it makes sense to start investing in it as soon as possible before the interest falls even more.
Also,the money in your PPF account is subject to changes in the interest rate in the future, in case the government further decides to lower the interest rate.
As discussed in my post on the power of Compound interest,compounding of money is a big plus point since a small amount invested every month can yield a significant amount of money on maturity.
If the maximum amount i.
e.
Rs 70,000 is invested every year at 8% per annum,it would yield almost Rs 20 lac after 15 years i.
e.
on maturity.
Although effectively only Rs 10,50,000 has been invested over a period of 15 years,you get more than double the amount.
There are certain limits on the amount of money you can invest each year in a PPF account.
A maximum of Rs.
70,000 can be invested every year and the minimum limit is set to Rs.
500.
Also,the money can be invested in up to 12 investments,with a maximum of 1 investment every month.
The investments have to be in multiples of Rs 100.
Also,there is a lock-in period of 15 years and the account cannot be prematurely closed,except in case of death.
partial withdrawals are allowed from the 7th year onwards.
Although more than one PPF account can be opened for specific purposes or goals,the total contribution towards both the accounts cannot be more than Rs.
70,000.
Also,the tax benefit does not get doubled.
Since the interest is calculated on the lowest balance between the fifth and the last day of the month of march,it is always better to deposit the money before March 5.
Thus,the PPF is a safe investing option for those who want their money secured and are not interested in taking risks by investing in stocks or mutual funds.
Visit my website http://www.
harshitsinghal.
com for more articles
It is considered the safest investment since it guarantees a secure future lump sum of money.
Also,as it falls under Section 80C,it provides investors with tax benefit as well.
The amount you get after maturity will not be taxable,so the 8% interest rate works out to be higher.
Let's assume that your taxable income is Rs.
3 lacs and you invest Rs.
50,000,your taxable income falls to Rs.
2,50,000.
This turns out to the main benefit associated with a PPF account.
Earlier the rate of interest was as higher as 12 % but it has been steadily falling since then,so it makes sense to start investing in it as soon as possible before the interest falls even more.
Also,the money in your PPF account is subject to changes in the interest rate in the future, in case the government further decides to lower the interest rate.
As discussed in my post on the power of Compound interest,compounding of money is a big plus point since a small amount invested every month can yield a significant amount of money on maturity.
If the maximum amount i.
e.
Rs 70,000 is invested every year at 8% per annum,it would yield almost Rs 20 lac after 15 years i.
e.
on maturity.
Although effectively only Rs 10,50,000 has been invested over a period of 15 years,you get more than double the amount.
There are certain limits on the amount of money you can invest each year in a PPF account.
A maximum of Rs.
70,000 can be invested every year and the minimum limit is set to Rs.
500.
Also,the money can be invested in up to 12 investments,with a maximum of 1 investment every month.
The investments have to be in multiples of Rs 100.
Also,there is a lock-in period of 15 years and the account cannot be prematurely closed,except in case of death.
partial withdrawals are allowed from the 7th year onwards.
Although more than one PPF account can be opened for specific purposes or goals,the total contribution towards both the accounts cannot be more than Rs.
70,000.
Also,the tax benefit does not get doubled.
Since the interest is calculated on the lowest balance between the fifth and the last day of the month of march,it is always better to deposit the money before March 5.
Thus,the PPF is a safe investing option for those who want their money secured and are not interested in taking risks by investing in stocks or mutual funds.
Visit my website http://www.
harshitsinghal.
com for more articles
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