To start the discussion on the benefits of public provident fund which is commonly known as PPF, first let us discuss everything about PPF.
1. Why the name PPF?
This is the fund started for the benefit of public. The provident means providing for future needs. Thus saving in PPF will cater to ones future needs.
2. Who started PPF?
It is started by the central government.
3. The amount which can be invested in PPF?
The minimum amount: Rs. 500 per annum
The maximum amount: Rs. 1 lakh per annum
4. Rate of interest in PPF
The rate of interest is 8.7 % for the financial year 2013-14. It may vary from year to year. The rate of interest is compounded annually.
5. Lock in period in PPF
The lock in period is 15 years. After 15 years, the lock in period can be extended with a block of 5 years and this can be extended till one attains the age of 70 years.
a) Loan facility
One can take the loan of the amount invested by him or her from the 3rd financial year (excluding the year of deposit) to of 5th year. This facility can only be chosen in case on unavoidable need. The rate of interest on loan is 2% per annum after 1/12/11 but the interest on loans taken before this date is 1%.
b) Withdrawal from PPF:
50% of the amount balanced after the end of the 5th year.
6. Benefits of PPF
a) Tax saving benefits
The amount invested in PPF is eligible for deduction under section 80C of income tax act.
Also read: calculation of income tax.
b) Interest free income
The interest earn on the PPF is tax free.
7. Where to open PPF?
The PPF account can be opened in post office or in selected banks like SBI, PNB, ICICI etc.
The PPF is one of the best options for salaried and non salaried people if the time horizon for saving is long enough as 15 years. The main benefits are tax saving and tax free income.