PPF Account: Public Provident Fund (PPF) is a popular long term savings scheme in India. Currently, it offers 7.1% interest rate with effect from 1 April 2023. Like every other savings scheme, PPF also has some disadvantages which you should consider before investing.
Top 5 Reasons Not to Invest in PPF
1) Less than EPF interest rate
PPF interest rate is lower Employees Provident Fund (EPF) The interest rate makes it less attractive for salaried employees who can allocate a higher amount towards EPF Voluntary Provident Fund (VPF) For better returns and tax benefits. The current EPF rate is 8.15% while the current PPF rate is 7.1%. Many salaried people use PPF to reduce their taxable income. Vineet Khandare, CEO and founder of MyFundbazaar suggested that salaried individuals can get comparable tax benefits and higher interest by allocating large sums in Provident Fund through VPF instead of investing in PPF.
2) Long lock-in period
takes 15 years to ppf account to mature. People who really want to invest for a very long time are better suited for this strategy. Amit Gupta, MD, SAG Infotech, said that PPF’s long lock-in period of 15 years makes it unsuitable for short-term needs. Khandare said, “If investors have an urgent need, they may have to look at other solutions.”
3) Fixed Maximum Deposit Limit
You can put a maximum of Rs 100 in PPF account. 1.5 lakhs. For the past few years, the government has not extended this ban. According to Khandare, for salaried employees who want to invest more money, VPF is a better option because 2.5 lakh can be deducted from income without any additional tax liability
Amit Gupta said, “The fixed maximum deposit limit, which has not been increased for many years, limits the investment potential for those who want to invest higher amounts.”
4) Strict early withdrawal rules
Premature withdrawal from PPF has strict conditions and is limited to one withdrawal per financial year after five years, except in the year of account opening. Premature closure is permitted only after five years subject to specific conditions and 1% interest deduction. Amit Gupta told that account holders can keep the account running by depositing 500 annually if they do not wish to continue with the investment.
5) Premature shutdown is not allowed
As per PPF rules, early closure is permitted under the following circumstances:
1) The account holder, his or her spouse or their dependent children have a life-threatening illness.
2) Higher education of the account holder or his dependent children.
3) Change in the residential status of the account holder
Also, in case of premature closure, 1% interest will be charged from the date of account opening. Instead of requesting for early closure, PPF account holders who do not wish to continue investing in the scheme can keep it open by making deposits. 500 each financial year, explained Khandare.
However, PPF is one of the biggest investment and tax-saving schemes for those who are not paid salary.
Disclaimer: The views and recommendations given above are those of individual analysts and not Mint’s. We advise investors to do due diligence with certified experts before making any investment decision.
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