Why to open PPF account as early as possible? Do you know the benefits of opening PPF account? Recently I was discussing about the importance and benefits of PPF account with few of my friends. I was expressing them my views why you should open a PPF account early although you don’t feel the need of such investment immediately. So let’s take the discussion further and checkout the need of a PPF account in anyone’s life.
Generally the minimum amount you should deposit in a PPF account is just Rs 500.00 / – per year. But it is such a tool where your deposited amount as well as the maturity amount is also tax exempted. Not only that, there is no legal liability as well on that maturity amount.
Why to open PPF account early in India
If you calculate the interest earned on PPF investment, you can easily discover that the interest you are earning around 8.1% is compounded every year. It is the net earning as there is no tax liability. Which is maximum from any investment at the current time. Just check out the interest rates offered by FD schemes where you may get 7.5% max. But interest earned by FDs are liable to TDS (Tax Deducted at Source), so net gain will be very less.
Even for investment in LIC policies is even much lesser than that (around 5-6 % max net gain). So you can enjoy a highest return from PPF account without involving in much risk. Off-course we have to exclude equity investment here as no one can guarantee how much you can earn.
And, in case you need an immediate tool where you want to keep your money for short term but want a decent return, then off-course your PPF account can give you huge relief. So let’s say at the age of 18 you have started your PPF account and somehow managed to keep that active. Now at the age of 30 if you feel you want to keep some significant money for a period of 3 years with good return, then you just have to put that amount in your PPF account. As your account is already 12 year old, you just have to wait till 3 more years. As simple as that!
Few PPF account Facts you must know about
You can read the article about Public Provident Fund in details here. But still I want summarize few points here to complete this article, so that people can understand the usefulness of opening a PPF account.
Generally people run after LIC policies, Tax saving MF and bonds etc. to save income tax at the last of the financial year without knowing that their investment may not give return as per their expectation. Instead of that, you can open a PPF account online or offline and put that amount in PPF and enjoy the same income tax benefit under section 80C. You need only Rs 100 to open a PPF account.
The interest calculated on a PPF account is on the lowest balance available between 5th and last day of the month. So in case you want to earn more interest, then make sure you deposit the money by 5th of every month.
After completion of 15th year, you can extend it further by continuing the contribution or without contribution. In case you don’t want to put more money in that account, just keep it going as you can earn 8.1% interest on that accumulated amount.
It is clearly far more than normal savings account interest rate of banks like SBI, HDFC, ICICI, Axis bank etc. Although we may not be sure how much will be the interest rates of PPF account after 15 years from now. However, seeing the current gap, we can definitely expect that, it will be more than the common investment products.
So in a nutshell, opening a PPF account will open the door for you to think and act for a long term investment plan. This will also help you to be mature and committed towards your financial goals, as many people are not able to save for their life at the early age. Hope this article will be helpful for you to understand benefits of opening a PPF account early. Please feel free to share your views or any further questions by a putting a simple comment below.