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Public Provident Fund: Know how to get the best of it

Priyadarshini Maji
PPF, Public Provident Fund, PF withdrawal, PPF tax benefit, PPF account, PPF maturity, PPF maximum limit, latest news on PPF, EPF, EPFO, PF withdrawal, EPF contribution, Social Security Code Bill 2019, parliament, salaried employees,

Public Provident Fund (PPF) is a government-backed small-saving scheme run under the Ministry of Communications. India Post offers nine small saving investment schemes, including PPF. This small saving scheme can be looked at for regular deposits. The popularity of this scheme as an investment option other than its tax benefit is because it can be started with minimal investment amount.

Return from the scheme – PPF offers guaranteed/assured returns every year, however, the exact figure fluctuates. Interest on PPF has compounded annually and credited to the depositor’s account on March 31 every year. Even though the interest is credited into the account on the very last day of the financial year, it is calculated on a monthly basis. Interest is payable for a month only if the deposit is made before the 5th of that month.

Therefore, under the PPF scheme, interest is calculated on a monthly basis, the interest rate is compounded annually, and it is reset every quarter.

Scheme Tenure – PPF, in general, comes with a lock-in period of 15 years, however, it is actually 16 years. That is because the date of maturity is not calculated from the date of opening the account. It is instead calculated from the end of the financial year in which the deposit was made. It is irrespective of the month or date in which the account was opened.

Tax Treatment – Along with the safe and secure nature of this investment, the triple tax break – EEE (Exempt, Exempt, Exempt) also lures investors to this scheme.

The investor’s investments are allowed for a deduction under Section 80C, up to Rs 1,50,000 lakh. Hence, the investor doesn't have to pay tax on part of the income that equals the invested amount. Additionally, he/she doesn't have to pay tax on the returns earned during the accumulation phase. To add to that, the income from the investment at the time of withdrawal will also be tax-free in the hands of the investor.

How to get the best out of the PPF account?

Use your PPF account as a retirement savings tool, or for other long term goals such as savings towards your child's higher education, etc. Just aim it towards a goal, having a long-term perspective in mind.

From a minimum of Rs 500 to a maximum limit under Section 80C of Rs 1.5 lakh, you can decide how much you want to invest in the account every year. Experts suggest one with a long term goal should deposit the entire amount, Rs 1.5 lakh every year if it fits his/her asset allocation and long-term goals.

Also, if you are unable to put in a huge amount at one go, you put the money in 12 installments, wherein each requires an investment of a minimum Rs 500 monthly.

Keep in mind to make the deposit in the very first month of the financial year, in April, and before the fifth of the month, this will let you get the best out of this investment.