Regular deposits can be made to the Public Provident Fund (PPF), a government-backed modest savings plan operated by the Ministry of Communications. According to experts, the appeal of this plan as an investment option stems from the fact that it may be launched with a little initial amount.
Along with the safe and secure character of this investment, the triple tax advantage — EEE (Exempt, Exempt, Exempt) — attracts investors to this plan.
Even while PPF provides guaranteed returns year after year, the precise number varies. PPF interest is compounded annually and credited to the depositor’s account on March 31 of each year. Although interest is credited to the account on the last day of the fiscal year, it is computed monthly. It should be noted that interest is only paid for a month if the deposit is made before the 5th of the month.
As a result, under the PPF plan, interest is computed monthly, compounded yearly, and reset quarterly.
The problem with PPF is that it has a 15-year lock-in term. When determining the tenure, the date of maturity is not computed from the date of account opening. It is computed instead from the end of the fiscal year in which the deposit was made, regardless of the month or day the account was created, therefore it is truly 16 years.
An investor can claim a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act and avoid paying tax on the portion of his or her income equal to the amount invested. Furthermore, the investor is exempt from paying tax on the profits received during the accumulation phase or at the time of withdrawal.
Here’s how to get the most of your PPF account:
According to industry experts, one should utilize their PPF account to save for retirement or for other long-term goals such as a child’s further education, child marriage, establishing a business, and so on. Simply guide it toward a goal while keeping a long-term view in mind.
A long-term investor should deposit the highest amount that can be invested – Rs 1.5 lakh per year – provided it matches their asset allocation and long-term goals.
If you are depositing Rs 1.5 lakh in a single transaction, attempt to do it in the first month of the fiscal year, i.e., April, and before the 5th. It should be remembered that interest is computed on the lowest balance between the 5th and final day of each month. As a result, if you deposit funds into your PPF account before the 5th of each month, your contribution will receive interest for that month as well.
Also, if you are unable to invest a large sum all at once, you can divide the money into 12 installments, each requiring a minimum monthly payment of Rs 500.