Public Provident Funds are the government-backed long term and risk-free investment schemes aimed at increasing the asset class and the culture of savings among the individuals. The investment scheme not only provides guaranteed high returns but also provides tax exemptions. It makes it a major attraction not only for every Indian, but residents who are living outside the Indian have shown their high interest to invest in the PPF scheme.
Should one invest their funds in Public Provident Funds: A long-term investment plan, Public Provident Fund is an investment plan for a period of 15 years.
Pros of Public Public Funds:
- Risk-free: The interest rates on the PPF are not subject to market risks, unlike other investment plans. The interest rates are decided by the government every quarter. For the present quarter, the interest rate on the PPF is 7.90%. Thus, there is an elimination of risk involved in investing in long-term investment plans and ensuring that there is guaranteed high returns on the investment.
- Tax benefits: One of the major attractions of PPF schemes is that the investors can enjoy tax benefits. There is a tax deduction up to Rs. 1.5 Lakhs on the amount invested in the PPF scheme under Sec 80 C of the Income Tax Act. Also, PPF scheme is called EEE( Exemption- Exemption- Exemption) as there is the exemption of taxes not only on the amount deposited but investors can get tax exemption on the interest earned as well the maturity amount received in the PPF account.
- Long Term Investment plan: If investors want to invest in a long term investment plan, then PPF is undoubtedly one of the best government-backed investment schemes.
- Investment in early age: If a young investor, say of 21 years has decided to invest his savings in PPF account and as the tenure of PPF scheme is 15 years so at the end of 36 years he can get a good return on his investment, which can be utilised to fulfil any dream.
- Take a loan against PPF: The investors can also take a loan against their PPF account. The loan against the PPF account can be made at the end of 3rd financial year till 6th financial year and has to be returned within a tenure of 36 months.
- Easy to open a PPF account: The good part about PPF schemes is that the investors who lack knowledge about making investments can easily open a PPF account. The amount in the PPF can be easily deposited and withdrawn in the PPF account online.
Cons of PPF scheme: Public Provident Scheme is not a good investment plan in the following scenarios.
- Not for short term investment: If someone is looking for a short term investment plan, then they may not be able to invest in PPF as the tenure of the scheme is 15 years.
- Joint accounts not allowed: If an investor does not have enough funds to invest in the PPF account and wishes to open a PPF account with someone else jointly, then he may not be able to do that as joint accounts are not allowed under PPF.
- No liquidity: Further, there is no liquidity in the scheme. There are some rules which permit partial withdrawal of funds, and the investors can take a loan against their PPF account, but it can be done after three years and has to be returned. The funds can be liquidated and withdrawn after 15 years.
- Maximum investment: Investors who are wishing to invest large amounts of funds may have to look for another investment plan as there is a restriction on the amount of investment under a PPF account. The maximum investment cap for investing in PPF accounts is Rs. 1.5 Lakhs.
- Not for NRIs or HUF: If a non-resident of India wants to open a new PPF account, then it is not permissible under PPF rules. However, if he had a PPF account when he was a resident of India, he can continue investing in the PPF account. For Hindu Union Family there are no provisions to open a PPF account.
Public Provident Funds is undoubtedly a sound investment plan with zero risks for investing funds in the long term.