Public Provident Fund
Investments in Public Provident Fund are recurring in nature and run over a 15-yr period. Annual contributions are mandatory to keep the PPF account active. The minimum and maximum investment amounts are pegged at Rs 500 pa and Rs 70,000 pa respectively.
Only contributions of upto Rs 70,000 pa are eligible for tax benefits under Section 80C. Any amount invested over the aforementioned is returned without interest.
At present, PPF investments yield a return of 8.0% pa. However, it should be noted that the returns are assured but not fixed. This is because the rate of return is subject to revision i.e. it can be revised upwards or downwards thereby impacting the returns.
Liquidity
With no provision for a regular interest payout, PPF fares rather poorly on the liquidity front. Withdrawals can be made only from the seventh financial year. Furthermore, the amount that can be withdrawn depends on the balance in the PPF account in the earlier years.
Taxation
Apart from Section 80C tax benefits on the amount invested, interest income from PPF investments is exempt from tax under Section 10(11) of the Income Tax Act.
Apt for...
Given that investments in PPF run over a 15-yr period and that annual contributions are mandatory, it is an ideal avenue to build a corpus for long-term needs like retirement and children's education. It will appeal to investors who accord higher priority to returns over liquidity.
Image: A bank employee counts currency notes | Photograph: Indranil Mukherjee/AFP/Getty Images
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