Are PPFs A Boon or A Bane for Investments

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The Public Provident Fund is one of the most popular tax-saving investment instruments in India. As a government backed savings scheme, and with the tax exemption available under section 80C of Income Tax Act, a significant proportion of Indian citizens put their trust in PPF account.  

By providing a good return on investments, PPF has undoubtedly proved itself as a profitable investment option, but is it a risk free investment? Moreover, it is important know if it’s a boon or a bane before a person makes the decision to invest in Public Provident Fund. So, to further the knowledge of our readers, in this article we have given them some insight on the advantages and disadvantages of investing in PPF.


Provides Flexibility in Amount Deposited-

PPF is super flexible; one can deposit an amount ranging from a minimum of Rs. 500 per year to a maximum of Rs. 1 lakh annually. Moreover, in multiples of Rs 5, up to 12 deposits annually can be made by investors. Keeping every section of society in mind, the government has set a low minimum limit for PPF, so that the scheme can be availed even by a daily wage earner. Also the higher upper limit interests investors from middle and higher income groups. Such a wide range of investment limit proves to be very beneficial for all sections of investors.

Loan Facilities and Withdrawals-

Even though PPF has a lock-in period of 15 years, investors can make specific withdrawals after the first five years have passed from the initial deposit date. However, the withdrawal amount is limited to 50% of the balance of previous years. Moreover, a PPF account also provides loan facility if the investor does not want to make any withdrawals. The loan can be repaid within 36 months and the rate of interest on loan offered by PPF is 2% higher than the current savings rate of Public Provident Fund.

Various Tax Exemptions-

A PPF account provides tax benefits in every way possible. The amount invested in Public Provident Fund is tax exempted, additionally the interest earned on the deposit amount and maturity benefit at the completion of 15 years of tenure is also tax deducted under section 80C of Income Tax Act.  Thus, the triple tax benefit offered by PPF makes it one of the most attractive tax saving investment instruments. Besides this, with the help of PPF calculator one can get all the information related to the investment and tax exemption.


Joint Account is Not Allowed in PPF-

Under Public Provident Fund joint accounts are not allowed, unless one opens the account with a minor. Furthermore, one can choose to nominate a beneficiary in a PPF account. However, it is advisable to choose a beneficiary in the PPF account as it is a long term savings instrument. Choosing a nominee will help one avoid difficulties at a later stage.

NRIs Cannot Open a Fresh PPF Account-

NTIs are not eligible to open a new PPF account. Nevertheless, if an individual has an existing account as an Indian resident and has become an NRI later, then he/she can continue to invest in the PPF account. Moreover, the amount invested towards the Public Provident Fund will be eligible for tax exemptions.

Provides Less Liquidity-

One major downside of PPF is that one cannot withdraw from the account of Public Provident Fund until the completion of 5 years. One can withdraw only 50% of the amount after the 5 years of scheme completion. Excluding the deposit year, the loan can be availed from the 3rd financial year. So, in during an emergency if an individual requires a large amount of money, then it is advisable to invest in other investment instruments that provides more liquidity than PPF does.

Wrapping Up!!

There is no doubt that PPF is a profitable investment option because it not only provides good returns on one’s investments, but also provides tax benefits. However, PPF is prone to re-investment risk and default risk, this means that the interest rate applicable on Public Provident Fund may change over time. For a second opinion, an individual should use PPF calculator to get an estimate of their potential returns.