How To Make The Best Of PPF?

In the fixed income space, the Public Provident Fund (PPF) is a popular investment avenue among investors. A PPF account allows individuals to invest up to Rs 1.5 lakh each year and also provides a tax deduction under Section 80C of the Income Tax Act. The account has a validity of 15 years and the account holder is supposed to deposit a minimum of Rs 500 every financial year.

The interest rate for PPF is set and paid by the government for every quarter. PPF interest rate for the first quarter of the year 2021-22 i.e. from 1st July to 30th September 2021 has been fixed at 7.1%.

Tips About How To Take Maximum Benefit From PPF

• Schedule Monthly Investment in PPF

It is not mandatory to invest in a PPF account every month. A single 500 rupee investment in a year is enough to keep your account active. But to get the most benefit of PPF you must invest regularly. Regular investment is the best saving tip. Give a standing instruction to your bank for monthly transfer in the PPF account. It can be done online also. 

• Invest Lump Sum Also

Besides regular investment, you should also try to invest in a lump sum when you get extra money. You get a bonus,  Put some amount in PPF account also. This lump sum money will make your maturity amount fatter without pinching you. Also, more investment means more tax savings. Note, you can’t put more money in a PPF account than the 80C limit.

• Open Account In Start of The Financial Year

Opening an account before 5 April would be considered an investment of the same year. But if you miss the 5 April date, then your account opening year would be considered from the next financial year. 

• Deposit at the Start of Every Month

Earlier, banks used to give interest on a minimum balance between the 10th of the month to the last day of the month. Now they are interested in daily balance. But PPF is still practising such a tradition yet. PPF will only count the money for interest if it is deposited before the 5th of the month. So If you want the interest for the whole month, deposit your sum before the 5th of the month.

• Choose The Bank Which Gives Online Fund Transfer Facility in PPF Account

You should not miss your regular investment in PPF. Also, you should not have any excuse to break the regularity. The regular online transfer mandate will be very useful in this regard. The online fund transfer facility should be also used for the Public Provident Fund. But Unfortunately, today not every bank gives this facility to PPF. Hence, if you are going to open a PPF account, then check if the bank has online viewing and transfer facility for the PPF also. Of course, you can give standing instruction physically also. But the online facility will give you more ease and less chance of missing investment. 

• Take A Loan From PPF instead of Personal Loan

It may happen that you need money for short periods. Also, you may not have any mortgage offer. Then you would have only the option to take a personal loan. But if you have a substantial amount in a provident fund account, then you can take a loan against it. The interest rate would also be less. Normally, personal loan interest rates vary from 13-36%. But Interest of loans against PPF would be only 2% more than the PPF Interest rate. It may come around 11%, according to the current rate of PPF.

• Open PPF Account in the Name of Your Child

You plan and your child will enjoy the PPF account which will have only a maximum 5-year lock-in period. Yes, it is possible if you open a PPF account for her, while she is in childhood. Till she becomes an adult, the first 15-year lock-in period would be completed. Afterwards, there would be a lock-in period of only 5 years. As the minimum investment limit is only 500 per year, this should not bother you. Further, you can invest money in this PPF account for her study or marriage also. It will give you a double benefit.

Conclusion

Due to its guaranteed returns and tax benefits, PPF is preferred by many individuals, particularly small savers who have a low appetite for risk. However, there are several other savings and investment options available to those who want better returns in the long run or more liquidity with their investments. Some of the common alternatives to PPF are ELSS, Tax-Saver FDs and NPS.

Also Read: 

Understanding PPF And Its Benefits

Are Mutual Funds A Good Choice Of Investment?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.