Skip to main content

Should you invest in PPF?

PPF (Public Provident Fund) is one of the common investment options among Indians - be it salaried individuals or someone else. In addition to offering Income Tax benefits under Section 80C, it also offers assured returns (current rate of interest is 7.6%). And even the interest earned is also completely tax free.

 But is it really worth investing in PPF or are your investments better off in some other avenues?

 Here are some pros and cons of investing in PPF.

 Pros
  • Tax benefit up to Rs. 150,000 under section 80C of Indian Income Tax Act. 
  • Good rate of returns - currently at 7.6%. Rate of returns is typically 50-100 bps higher than that of FD in major banks. Effective returns are more since the interest earned is also tax free. 
  • Since there is a lock in period of 7 years (after which you can start withdrawing partially), this can form a habit of forced savings, if you are someone who is prone to impulse buying. Over the years, the amount of interest you can earn on your deposits is really good. Reason - compounding!
  • If needed, you can take a loan against PPF also. Not an ideal case scenario, but can be handy if you are in dire need of money.
  • You can begin with a very small amount. Minimum deposit needed to start a PPPF account is Rs. 500 only!
Cons
  • Historically stock markets (equity or equity focused MFs) have given a much higher returns. While past performance is not a guarantee of future performance, one can potentially get much better returns, if the past trends continues. 
  • If you are a salaried individual & have PF facility, you may get better returns if you invest surplus money in voluntary PF. Typically rate of interest in PF (and voluntary PF) have been around 50-100 bps higher than in PPF. 
  • If you are hard pressed for liquidity, investing in PPF may lead to even more cash crunch due to its lock in period. 

Do consider the above factors before you decide for or against investing in PPF.

My take -

IT is a good investment for getting assured returns,  so one should be investing money in it. If you are hard pressed for liquidity, you can invest small amounts. If you have lot of excess liquidity, you can max it out by investing Rs. 150,000 (the upper limit) irrespective of other tax benefits you are getting under section IT 80C. 

 ___

 You can also read this post on BeingFinWise
Labels:

Comments

Post a Comment

Shop @ Amazon

Popular posts from this blog

Assorted Random Semi-Verses

Memories Isn't every memory a magic? Making you lose the sense of time. Which is so much beyond the realm of logic. Though sometimes they are mere illusions But they keep coming back to you, And make you feel nostalgic! ___ The Dark Side With every talent comes a curse, From every gift speaks a caveat aloud, Even the beautiful moon has a dark side, And every silver lining has a cloud! ___ The Race Somewhere in this race, Some time during the run, I lost myself in between, And forgot to have fun. ____ I write ... I sometimes write random words, Which hardly make any sense; But I just felt that you should know, That in some corner of this little world, I do have a little presence!
5 comments
Read more

Snaps from The Himalayas

Some glimpses of one of the best landscapes in the country. Why long for Alps when our own old, enigmatic yet beautiful Himalayas provide such magnificent and picturesque sceneries!! Have a look. Enjoy. Location - Garhwal Region, Himalayas which lie in the state of Uttrakhand.
10 comments
Read more

destined for greatness ...

He had one final look at his work. The ending was perfect. The beginning was perfect. Yes. The pace slackened a bit in middle, but it was acceptable. A handful of people may not like it. He couldn't please all. But he was sure that he would please most of the people, the ones who mattered. Above all, the work would impress him. He had surpassed his own expectations. He had read the final draft for the 27th time by now. It was perfect. Next day he would contact the publishers. He was sure that nobody would refuse. They would lap up his work and offer him some handsome sum of money. Probably much more than any of the first time writers could ever dream of, at an age of 29. That would bring it all - name, fame, recognition, money ... everything! He was destined for greatness, as a part of the title suggested. Maybe in a year ... or two years at max, the world will recognize his greatness. Maybe, that would be fitting reply to the world which had branded him as a insecure, reclusive, w...
Post a Comment
Read more

Financial tips for a 25 year old

Originally published at  BeingfinWise __ If you are 25 year old, there is a good likelihood that you would have started working or are likely to start soon. And hopefully start(ed) managing your own finances. So, what do you do next? The good news is that having a profession can soon lead to cash flows which perhaps wouldn't have seen in your student days. And that can be empowering in many ways. The bad news is that, if you are reckless with spending money, it can soon lead to a downward financial spiral. Managing your finances well can be a good first step towards a healthy financial life. And it starts with small steps.
Post a Comment
Read more

What's the purpose of investing?

"Investment" - This word is much used and often much abused one. One keeps on hearing this almost all the time be it in office or catching up with friends or attending a family functions - almost everywhere. More so when we are fed with lot of information about how one needs to make money work to get more money. However, for a lot of people, the clarity on one question is often lacking - What is the purpose of investing? And even if one knows his/ her purpose of investing, it is often not implemented in real life. For instance, purpose of one's investments may be having sufficient funds in times of need. Yet they may opt for a personal loan when faced with pressing need for money. Based upon my observations, below are some of the most common purpose of investments (in no particular order) I invest because there is some sufficient funds lying with me and I can get great returns. I am investing for some specific goal - buying a house, education of kids, m...
1 comment
Read more