BENEFITS OF PPF ACCOUNT
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PPF is the safest among the most secure investments available in India. The interest earned on the PPF subscription is compounded; that means you not only earn interest in the money you deposit, but you earn interest on the interest earned too. The amount that accumulates over time is exempt from wealth tax.
Main benefits of PPF:
- Ideal investment option for both salaried as well as self employed classes.
- Investment up to INR. 1,00,000 per annum qualifies for IT Rebate under section 80 C of IT Act.
- The rate of interest on the subscriptions made to the fund on or after 01.04.2013 and balances at credit of the subscriber in the existing PPF account shall bear interest at the rate of 8.70% per annum.
- Loan facility available from 3rd financial year up to 5th financial year.
- Withdrawal permitted from 6th financial year.
- Free from court attachment.
- An individual cannot invest on behalf of HUF (Hindu Undivided Family) or Association of persons.
An example is shown below describing, if an individual invest Rs 1,00,000/ year, then in 15 years he will have an amount of Rs 30.64 lakhs as per current interest rate of 8.70%. The interest portion is completely tax free. Principal portion can be claimed as a deduction under Sec 80C.
| Year | Principal | YoY investment | Interest | Amount |
|---|---|---|---|---|
| 1 | 100000 | 0 | 8700 | 108700 |
| 2 | 108700 | 100000 | 17740 | 226440 |
| 3 | 226440 | 100000 | 27747 | 354187 |
| 4 | 354187 | 100000 | 38606 | 492793 |
| 5 | 492793 | 100000 | 50387 | 643180 |
| 6 | 643180 | 100000 | 63170 | 806350 |
| 7 | 806350 | 100000 | 77040 | 983390 |
| 8 | 983390 | 100000 | 92088 | 1175478 |
| 9 | 1175478 | 100000 | 108416 | 1383894 |
| 10 | 1383894 | 100000 | 126131 | 1610025 |
| 11 | 1610025 | 100000 | 145352 | 1855377 |
| 12 | 1855377 | 100000 | 166207 | 2121584 |
| 13 | 2121584 | 100000 | 188835 | 2410419 |
| 14 | 2410419 | 100000 | 213386 | 2723805 |
| 15 | 2723805 | 100000 | 240023 | 3063828. |
The only constrain is that, PPF is an extremely illiquid investment instrument. Its lengthy lock-in period works out to 16 years since the last contribution is made in the 16th financial year.
However, the PPF is a very good savings instrument, and you should consider investing in it.
Invest and enjoy…
