Is PPF Still a Good Investment Option?

Public Provident Fund (PPF) continues to be a great investment option for most citizens. There are well-defined and substantiated reasons for the investment option retaining its popularity and traction amongst investors in India. PPF is one of those quintessentially safe, risk-free, and high tax-saving instruments that will be a value addition to almost any investment portfolio, albeit in varying amounts. It helps in meeting long-term goals like buying a home, retirement, and so on. PPF comes with EEE (exempt-exempt-exempt) status and this means that you get tax benefits while investing, accumulating, and withdrawing.

PPF gives you tax deductions up to Rs. 1.5 lakh for a particular financial year under Section 80C. The interest that you earn annually will also be fully exempted from taxation as well. Also, the accumulated money that you withdraw at the time of maturity will also remain exempted from taxation, making this completely tax-free, to say the least. Public Provident Fund offers one of the highest interest rates amongst products that generate fixed income. It offers one of the highest rates which hover around 7.1% for the quarter concluding on 31st March 2021. This is more than rates of interest on several other schemes like the NSC (National Savings Certificate) which offers 6.8% and also the 5-year TD (time deposit) of the post office which offers 6.7%. The rate is quite close to the EPF interest rate although it has outstripped the latter in a few situations. PPF interest rates are also subject to change, as mentioned by experts. Hence, in a rising rate scenario, you will automatically stand to earn more on your investments.

PPF is better than several investment products like 5-year bank fixed deposits which help you save taxes. Locking in the investment at a lower rate of interest for a long duration will naturally make you the loser when rates start moving up. PPF interest rates remain floating and are changed on a quarterly basis. Once the interest rates in the economy start going up, the PPF rate will also start increasing as a result. However, rates may come down as well although the chances are always on the lower side. Compounding is another aspect worth considering. When you are investing for a lengthy duration, compounding will work its magic on your PPF account. This account matures in a time period of 15 years. At maturity, you can withdraw your whole balance while closing the account. You may also extend this for another 5 years with/without any added contributions. The extensions in 5-year blocks may be carried out indefinitely.

Suppose someone invests Rs. 50,000 annually in PPF. In this case, a corpus of a whopping Rs. 14.06 lakh may be built within 15 years in case rates of interest stay at 7.1%. Yet, if extended by another 5 years, this will go up to a whopping Rs. 22.69 lakh. Three extensions and with a total investment duration of three decades, you may earn Rs. 52 lakh approximately. If you opt for Rs. 1.5 lakh annually, you may accumulate Rs. 42.18 lakh within 15 years and Rs. 1.56 crore in a period of 30 years with extensions.

Some other factors worth noting

Public Provident Fund (PPF) is ideal for conservative investors who are looking to save taxes with assured returns and investment security alike. PPF interest rates are attractive while the risk factors are really low. Safety on the FD in a bank is restricted to just Rs. 5 lakh provided by the DICGC (Deposit Insurance and Credit Guarantee Corporation), the returns that you will get on the Fixed Deposits (FDs) will not have tax exemption. Via the SCSS (Senior Citizen Savings Scheme) and Sukanya Samriddhi Scheme, you may earn higher rates of interest although these are tailored for particular purposes and are available only for a limited pool of investors in the country. At the same time, PPF is readily available to a much wider customer base.

Investors with a higher appetite for risks may keep some portion of the investment kitty or portfolio in debt-based products for diversification and lowering overall risks. If investments are being made for meeting long-term goals, PPF is the best option since it provides stability along with optimal returns in the debt component of the portfolio. Section 80C benefits will be more relevant for those in higher income tax segments and it is a far better option when your income will be taxed at 30% or higher. PPF helps in building a future corpus that is completely free from all taxation. It also adds to the overall safety of your portfolio, de-risking it to an extent. Keep investing in PPF for meeting goals that are 10 or 20 years down the line. For short-term gains, invest in mutual funds, stocks, and other channels with the guidance of your financial advisor.