How you can use Public Provident Fund for better financial planning
Updated on: 10 April 2023
Published on: 7 September 2021
Highlight: Worried about long-term financial planning? Investing in a public provident fund (PPF) can be a good investment option with many benefits. Learn how you can invest in PPF for better financial planning.
The reality of inflation has everyone thinking about investing their savings for long-term financial planning. In these times of uncertainty, investing in a public provident fund (PPF) can be the best investment option.
The PPF is a savings scheme for long-term investments as it comes with a lock-in period of 15 years, known as its maturity period. PPFs accounts are comparatively safer for investing and earning a high interest rate over bonds or fixed deposits. Here are all the numbers behind them:
A PPF account allows investors to invest up to Rs 1.5 lakh every year.
The minimum amount that an individual can invest in their PPF account every year is Rs 500.
Moreover, investors get tax deduction benefits under section 80C of the Income-tax act, and the final maturity amount is completely tax-free.
Benefits of investing in a PPF account
Here are a few benefits of investing in a PPFs and how it can be a good option for long-term financial planning.
Tax benefits: You get tax benefits at all three stages of investment in a PPF- In the initial investment stage, you get tax deduction benefits, the interest accrual stage, and the final maturing stage.
Safe and secure option: A PPF is a government-backed scheme, which is entirely safe and secure for investment.
Long-term savings: Since PPF has a 15 year lock-in period, you can plan for your long-term goals such as retirement plans, children’s higher education, etc.
Flexibility to invest: You can invest up to Rs 1.5 lakh in a year, and the minimum amount you can invest in your PPF account is Rs 500 every year. You have the option of investing monthly, half-yearly, quarterly, or annually.
Flexibility to withdraw: Despite a lock-in period of 15 years, you can withdraw part of your savings after 5 years.
Open PPF account in minor’s name: If you are looking for long-term investment schemes for your child, you have the option of opening the PPF account in your child’s name. PPF is the best option for your child’s future.
How to use PPF accounts for better financial planning
Here are a few effective ways to use PPFs for your long-term financial planning.
1. Invest to earn interest deposits
You can earn annual interest on your yearly deposits. To make the best out of your PPF account, here is what you should know.
All your deposits are tax-free, and the interest earned on your deposits are also exempted from tax, which makes earning interest from your deposits in a PPF account a good option.
You have the option of making about 12 investments annually.
Making a lump sum investment at the beginning of the financial year may not give you good interest. For instance, if you are depositing an investment in January, the interest calculation will be for the months of January, February, and March, which means it will not be credited for the entire financial year.
Alternatively, you earn more interest if you deposit your investments monthly and pay on a regular basis.
2. Apply for loans using PPF accounts
One major benefit of investing in a PPF account is the ability to apply for a personal loans. Here are the requirements to consider before applying for a loan with the help of your PPF account.
You can apply for a loan after completing 1 year of investments in your PPF account before the expiry of 5 years.
The loan tenure is 36 months, and you have to repay the loan in installments within the specified tenure.
3. Plan for retirement
The long-term nature of deposits with a minimum lock-in period of 15 years makes for the ideal retirement plan. PPFs offer a high rate of interest compared to other savings schemes such as bonds or fixed deposits.
You can make a 7%-8% interest return if you deposit up to Rs 1.5 lakh annually. What makes PPF the best investment for retirement is that the principal amount and the interest are tax-free on withdrawal after maturation.
PPF Investments: Conclusion
A public provident fund is a tax-saving account and a low-risk savings investment scheme backed by the government to earn interest. If properly invested, you can have secure long-term goals for yourself and your family.