PPF is one the popular investment options available to you as a Indian tax-payer. In this post, I will try to cover key points to consider while investing in PPF. I will also cover those points which should not matter while investing in PPF.
In this article
- When to invest in the PPF?
- When not to invest in PPF?
- What should not matter?
When to invest in the PPF?
You want to save tax by investing your savings
Since PPF is part of the Section 80C of the Income Tax Act, you can save tax by investing in it. You can save up to 45000 rupees on a investment of 1.5 lakh depending on your total income.
You want a safe investment and do not want to lose money
If you invest in PPF, you will not lose any money as your investment is guaranteed by the Indian Govt. In case of stock related investments like ELSS, you may lose money depending on how the stock market performs.
You do not want to pay tax on the interest earned
PPF interest in not taxable whereas the interest on other safe-investments like tax-saver FD and NSC is taxable.
You want a hassle-free easy investing mechanism
PPF accounts can be opened in banks and post office. You can even transfer money online to your PPF account, in case of certain banks.
When not to invest in PPF?
You may want your money back before end of the term
PPF money is locked-in for 15 years from the date of opening the account. You can get back some money in the form of loan and partial withdrawal. If you think you may want to get all the money back, then you should consider other options like tax-saver FDs and NSC which have shorter lock-in period.
You want return higher than around 8% provided by PPF
Other options like ELSS and ULIPs can provided higher return than 8%. However these are risky as you can lose your original amount.
Check this out ELSS vs PPF
Update: The present PPF rate is 7.6%.
What should not matter?
You may not have money to invest in the future
Minimum investment in PPF is 500. So if you do not have enough money to invest in a particular year, you can invest the minimum amount.
Government may reduce the interest rate in the future
Govt decides PPF interest rate each year. It is possible that future interest rate may be much less than the current rate. If that happens, interest on other safe-investments will also be reduced.
You may not stay in one place
If you think you may move to another city or country, it is not an issue. PPF accounts can be transferred across to another bank or post office near you. If you leave the country and become a non-resident, you can continue to use the account opened while you were in India and invest the minimum amount required.
Disclaimer: “Investors are advised to make their own assessment before acting on the information.”