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Why You Shouldn’t Ignore PPF In Your Investment Portfolio?

Public Provident Fund (PPF) is a long-term investment scheme designed for small investors with a range of benefits, from guaranteed returns to tax exemptions.

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Outlook Money
January 15, 2024
PPF In Your Investment Portfolio

PPF In Your Investment Portfolio

An effective portfolio is crucial for generating proper investment returns and achieving financial goals. Experts recommend investors must include a mix of debt and equity assets in the portfolio to balance risk and returns in the long term. In this context, navigating the volatile stock market in an election year merits special attention, as any major lapses could set you years back on your journey to financial freedom. Therefore, a Public Provident Fund (PPF) can be a valuable addition to the portfolio in a volatile market. The PPF’s guaranteed returns and tax benefits can significantly help you weather the storm in adverse market conditions, that’s why they say You Shouldn’t Ignore PPF In Your Investment Portfolio.

Furthermore, investment decisions should align with your short and long-term financial goals. Among fixed-income instruments, PPF emerges as a noteworthy option, and here’s why:

Guaranteed Return: PPF returns are guaranteed by the government. Hence, it is for those seeking assured returns. Investors can open a PPF account with the post offices and banks online or offline.

Power Of Compounding: PPF accounts can be opened for minors, an attractive feature not available in other guaranteed income products like the National Saving Certificate (NSC) and Kisan Vikas Patra (KVP), where minors up to 10 years cannot open an account. The lower age limit for PPF entry helps derive maximum compounding benefits.

Liquidity: The scheme has a 15-year lock-in, but it allows premature withdrawal in specific situations, such as a medical emergency, higher education of self or children, and change in the residency status, etc., after completing five years from the account opening date. Additionally, account holders can take loans against their PPF account balance one year after the end of the financial year in which the account was opened. For example, if you opened the account in 2023-24, you can take a loan in 2025-26.

Also Read: SCSS Vs PPF: What Suits Best For Senior Citizens?

Flexibility: You can start this small saving scheme with a minimum of Rs 500 and a maximum of Rs 1.5 lakh in a financial year, providing flexibility. Investors can deposit any amount within the stipulated limits every year to continue the account; however, the higher the amount in the initial years, the better the compounding effect.

Upon maturity, account holders can withdraw the amount and close the account, continue it without additional deposits, or extend it in five-year blocks as many times as they want. If extended, account holders can make one withdrawal every year, up to 60 per cent of the balance at maturity at each block of five years.

Tax Benefits: PPF offers EEE (Exempt-Exempt-Exempt) tax benefits, ensuring tax savings during investment, interest accrual, and maturity proceeds. Even though the new tax regime eliminates tax-saving benefits on deposits under section 80C of the Income-tax Act, PPF retains the other two tax exemptions, making it a preferred choice. In contrast, fixed deposits with banks attract taxation based on the tax slab.

While comparing PPF and other long-term products like the National Pension System (NPS), remember that PPF is a government-guaranteed product, whereas NPS is a market-linked product. Thus, PPF is a valuable option not only for tax benefits but also for its flexibility in investments and withdrawal options.

 

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