Benefits of Public Provident Fund

Why PPF?

For one, it scores high on safetysince your principal amount invested carries the Government of India badge of honour. Two, with Big Brother watching, your investment in a PPF also qualifies for tax breaks under Section 80C of the Income Tax Act. What’s more, even the interest earned (8 percent compounded annually) is free from income tax, making it the first among equals for debt-based products. A similar product will have to earn 11.5 per cent at the 30.6 per cent tax rate to be equal to the return that the PPF gives. And there is yet more to come: there is no cost to entry, maintenance or exit on this product.

You can either open a PPF account at any branch of the State Bank of India  and its subsidiaries, a few branches of the other nationalised banks, and all head post offices in the country. Once you open an account, do keep count-your investment is restricted to a Rs.500-70,000 band in a single financial year. And you can jolly well chip in to this account for15 years. Unlike in a bank recurring deposit or insurance payments, you do not need to deposit the same amount every month or year. Hassle-free investment every year would keep the doctor away.

Before maturity, you can make withdrawals from your account starting the sixth financial year. You may even apply for a loan from the third year on.

Compared with debt funds and the fixed deposits, PPF gives the biggest bang for the buck. Axe the tax, make PPF sound more like a perennial profit fund!

Source: Outlook Money – 31 January 2007 Pg.52

from Auditor’s office