ET Wealth Wisdom Ep 117: 7 reasons why PPF is a preferred tax saving investment | The Economic Times Wealth Podcast

Hi everybody and welcome to episode 117 of the ET Wealth Wisdom podcast

I’m Tania Jaleel

When it involves tax-saving investment merchandise, the Public Provident Fund or PPF in an choice that is widespread amongst many.

In this podcast we’ll take a look at seven reasons why the PPF is a preferred mounted earnings, tax-saving investment choice for long run objectives like retirement.

1) Triple tax exemption standing
PPF is one of many few investment merchandise that enjoys the advantage of triple tax exemptions, i.e., the exempt-exempt-exempt (EEE) standing.

What this imply is that you just get tax exemption on the time of investment, accrual, and withdrawal.

2) One of the very best rates of interest amongst mounted earnings merchandise
EPF presently presents the very best rate of interest amongst mounted earnings merchandise which have authorities backing.

For FY2020-21, EPF is providing 8.5%.

However, this investment choice is restricted to salaried people.

The PPF, alternatively, is an investment product that even self-employed individuals can make investments.

The present rate of interest on PPF is 7.1% (for the quarter ending March 31, 2021), which is larger than 6.8% supplied on different small financial savings schemes just like the National Savings Certificate and 6.7% supplied on Post Office 5-year Time Deposit.

3) (*7*) floating charges when rate of interest is low
If you lock-in your investment at a decrease rate of interest for a longer interval, you’ll lose out when charges go up.

Now this is one of many many reasons why the PPF scores over merchandise just like the 5-year tax-saving financial institution FD.

Unlike mounted deposits, the place the rate of interest is mounted for the whole investment interval, the rate of interest of PPF is floating which might change each quarter.

Once the general rate of interest within the financial system begins rising the rate of interest on PPF can even rise and your investment will begin fetching larger returns.

A floating fee is a double edge sword nonetheless, and it might harm when the speed falls.

4) Power of compounding works wonders in long run
If you may have time in your facet, the ability of compounding can do wonders to your investment.

A PPF account matures in 15 years. After the account matures, you’ll be able to both withdraw the whole steadiness and shut the account or lengthen it for 5 years with or with out making additional contributions.

The extension in blocks of 5 years could be accomplished indefinitely.

If you make investments Rs 50,000 annually in PPF you’ll be able to construct a corpus of Rs 14.06 lakh in 15 years, if the rate of interest stays at 7.1%.

However, in the event you lengthen it for one more 5 years this quantity will increase to Rs 22.69 lakh.

With 3 such extensions and with a complete investment interval of 30 years you’ll be able to accumulate Rs 52 lakh.

If you go for the utmost permissible investment of Rs 1.5 lakh annually, you’ll be able to construct a corpus of Rs 42.18 lakh in 15 years, and with extensions it can save you Rs 1.56 crore in a 30-year interval.

5) Tax haven for conservative buyers
If you’re a conservative investor searching for tax saving with assured return and security of your investment, then then the PPF is the most effective choices.

When at current a lot of the massive banks are giving 5.5% or decrease rate of interest on their 5-year tax saving FDs, the rate of interest supplied on PPF definitely comes with a good premium.

While security on a financial institution FD is restricted to Rs 5 lakh supplied by the Deposit Insurance and Credit Guarantee Corporation, the return that you just get in your FDs is not exempted from tax.

Further, although Sukanya Samriddhi Account and Senior Citizen Savings Scheme provide larger rates of interest in comparison with PPF, they’re for meant for particular functions and obtainable just for a restricted set for buyers.

6) Even aggressive buyers can diversify by way of PPF
Even an investor with a excessive danger urge for food can hold some a part of his/her investment in debt merchandise to diversify their portfolio.

If the investment is for a long-term objective, then PPF is an choice for such aggressive buyers in addition to it offers the specified stability and optimum return within the debt portion of the portfolio.

7) A will need to have for buyers within the highest earnings tax bracket
The part 80C profit is probably not related for many buyers within the highest earnings tax bracket as they produce other avenues to utilise equivalent to EPF, kids’s training payment, house mortgage principal, time period insurance coverage premium and many others.

However, the tax exempted nature of return makes PPF a much more interesting choice particularly when any earnings is taxed at a fee of 30% or extra.

With PFF, buyers can construct a corpus which is fully tax free.

And on that notice that shall be all for this week

Come again subsequent week for extra wealth knowledge