Pros and Cons Of Opening A PPF Account

The Buyt Desk

Public Provident Fund (PPF) is a government backed investment cum saving instrument. At present, the interst on PPF is 7.1%. It promises assured return but can’t give you a fixed return as the interest on PPF can be changed by government on quarterly basis.A PPF account matures in 15 years. This investment product enjoys the EEE status, i.e. amount invested in the account is exempted from tax, interest earned is exempted from tax and the amount withdrawn is exempted from tax.

Therefore, it is considered one of the best tax saving investment schemes after the EPF account for salaried people.

Furthermore, an account holder can take a loan against the PPF account amount after three to six years of account opening.

Opening of PPF account gives advantages in manifolds, but this does not make it an absolute investment product for all investors. It also comes with some cons when overall corpus growth is taken into account.

Pros And Cons Of Opening A PPF Account

Top Advantages of Opening A PPF Account

It gives a guaranteed return on the investment.
It has a government hand at the back that makes it the least risky investment product.
It gives flexibility. An investor can start the investment with a minimum of 500 Rs in a year. One can choose to pay the investment either in instalments or lump sum.
The amount contributed to the PPF account can be claimed for tax rebate under the Income Tax act 80C.
The interest earned on the PPF account remains tax-free.
It can be opened in the name of a minor, having a major as guardian.
The partial withdrawal of the accumulated amount is possible in the PPF account under some conditions.
After fifteen years, investors can extend the account for a maximum of five-five years tenure. They can do that as long as they wish to continue with it.

The Disadvantages Of Opening A PPF Account

A HUF, Trust or NRI can not be a PPF account holder.
There is a limitation with the premature withdrawal of accumulated amounts.
The lock-in period of 15 years is a big time.
There is a limitation for the minimum amount deposit in a year. It is Rs. 1.5 Lakhs/annum. A deposit above 1.5 Lakhs will not get the benefit of tax exemption.
The account cannot be closed before fifteen years time period. It could happen only in the case of the account holder death.
The return offered is lower than the other schemes, such as NPS, Mutual funds, etc.
The interest rate offered remains fixed for a set period of time. It can be easily eroded by high inflation.

These are the pros and cons of opening a PPF account. However, the PPF account is one of the safest products for a small amount investment by low risk-taking investors.OOD account can be opened in all the public sector banks, some private sector banks also offer PPF or in post offices.

There are products present in the market that gives the same instalment facility as PPF with a high-interest rate. Therefore, it is advisable that before opening a PPF account, you must compare it with other investment products.