Disadvantages of Public Provident Fund (PPF): 5 limitations you should know before investing

Public Provident Fund (PPF) disadvantages: Like every other savings or investment scheme, PPF also has some disadvantages that you should know before investing.

Disadvantages of Public Provident Fund
Here are 5 disadvantages of Public Provident Fund. Representational image

Public Provident Fund (PPF) disadvantages: Public Provident Fund is a good savings scheme that can be used for accumulating a large corpus over the long term. But like every other savings or investment scheme, PPF also has some disadvantages that you should know before investing. This article looks at five such disadvantages.

1. Lower than EPF interest rate: For salaried employees, PPF has a disadvantage in terms of interest rate. The current PPF interest rate is 7.1%, which is lower than the EPF interest rate of 8.15% for FY 2022-23.

While many salaried employees use PPF for tax-saving purposes, they can get similar tax-saving benefits and better interest by allocating higher amounts towards Provident Fund through VPF instead of investing in PPF. However, for non-salaried, PPF continues to remain one of the best tax-saving and investment schemes for guaranteed returns.

2. Long lock-in period: The PPF account matures in 15 years. This scheme is more suited to individuals who really want to invest for a very long term. For any short-term needs, investors may have to look for other options.

Also Read: Should salaried employees increase VPF contribution instead of investing in PPF?

3. Fixed maximum deposit limit: The maximum amount you can deposit in a PPF account is fixed at Rs 1.5 lakh. This limit has not been increased by the Government for the last several years. For salaried employees, who want to invest a higher amount, VPF comes as a better option where up to Rs 2.5 lakh can be allocated from salary without any additional tax outgo.

4. Strict early withdrawal rules: There are several strict conditions for premature withdrawal. For instance, you can make only one withdrawal during a financial year and that too after five years, excluding the year of account opening. So if you open a PPF account in FY 2023-24, you can make the first withdrawal only during FY 2029-30.

5. Early premature closure not allowed: If you want to discontinue investing in a PPF account, you cannot close it prematurely whenever you want. As per PPF rules, premature closure is allowed only after five years from the end of the year in which the account was opened and that too is subject to the following conditions:

  • Life-threatening disease of the account holder, spouse or dependent children.
  • Higher education of accountholder or dependent children.
  • Change of resident status of the account holder ( i.e. became NRI).

Moreover, 1% interest will be deducted from the date of account opening in case of premature closure. However, PPF account holders, who don’t want to continue investing in the scheme, may keep it alive by depositing Rs 500 in every financial year instead of applying for premature closure.

Read next: Disadvantages of Fixed Deposit, Senior Citizen Savings Scheme, Mutual Funds

(Disclaimer: The above content is for information purposes only. Please consult your financial advisor before investing)

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First published on: 09-05-2023 at 11:45 IST