Public Provident Fund should be part of your investment portfolio

 

The current situation in the world has got a lot of people looking back and wishing they had saved some money for a rainy day because it’s been a pretty rainy year so far. The ability or the inclination towards saving money isn’t really a quality associated with the current generation of “millennials” who could learn a thing or two from generation X in this regard. Now, this isn’t a post about mutual funds, or stocks, or foreign exchange, but rather about the first, most basic, risk-free, baby-step that you can take right now.

If you’ve ever worked a nine to five, you probably already know what a provident fund or PF is. You suffer a little deduction in your salary every month in order to ensure you get a decent chunk of cash when you decide to quit or retire. The public provident fund is similar in the sense that it’s guaranteed by the central government and there’s no way you can lose money on it. The similarities end there, however, as anyone can open a PPF account and you don’t need to be working for an organization.

All you need to do to open a PPF account is walk into bank or post-office with some basic identification and about Rs.500 or you can do it online.The fact that you not only get 7% interest on your money annually, which is more than any fixed deposit or savings account is going to offer you, but also income tax deductions for the amount invested makes this an attractive investment for your portfolio. Additionally, any interest received is exempt from tax, and so is the entire amount on maturity, making the opportunity cost of not having a PPF quite high.

Now saving money takes discipline, especially with schemes with fixed recurring deposits where you incur penalties for failure to pay on time. The reason we call the PPF a “baby-step,” is because even an individual who lacks discipline can see this one through to the end with relative ease. This is because there’s virtually unlimited flexibility in how much you want to invest every year with the minimum being Rs.500 and the maximum Rs.150,000.

While the choice is yours, that’s a really huge range and it can be difficult to set a target and stick to it when you don’t really have to. That being said,flexibility is always a good thing, especially in current times. The only catch, if we have to call it that, is that this is long term investment and maturity is after fifteen years. While there are ways to pay a penalty and cash out after 6 years, the plus side is that even a court can’t order you to settle a debt through your PPF account, so it’s basically safe even if you go bankrupt.

Eligibility: Resident Indians

Returns : Guaranteed

Lock In : 15 Years

Taxation : Tax Benefit under section 80c

Maturity : Tax Free

Minimum Investment : Rs 500/-

Maximum Investment : Rs. 1,50,000/-

In conclusion, getting a PPF account is an essential to your investment portfolio, especially with the higher than average interest rate, risk-free factor, tax benefits, and super-flexible payment options.





 

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