PPF offers guaranteed/assured returns every year, however, along with all the advantages of PPF, there are certainly some drawbacks that should not be overlooked.
Public Provident Fund (PPF) is a government-backed small saving scheme run under the Ministry of Communications. The popularity of this investment option is because of its tax benefit, along with the minimum investment amount. Experts say this scheme can be looked at for regular deposits.
PPF offers guaranteed/assured returns every year, however, the exact figure fluctuates. PPF is currently offering 7.1 per cent interest, and it is revised every quarter by the government. The catch here with this investment option is that one can only invest Rs 1.5 lakh in PPF in a year.
Experts say even though the yearly investment amount is limited to only Rs 1.5 lakh, PPF is among the safe fixed-income products. For conservative investors, it is an ideal option due to the fixed rate of return and predictability in the gains in PPF. Investing in PPF is recommended by financial experts as the maturity amount of PPF and the overall interest earned during the period of investment are tax-free.
Along with all the advantages of PPF, there are certainly some drawbacks that should not be overlooked. For instance, PPF is a long-term investment, you will not be able to get access to the money before 15 years from the date of investment, as PPF comes with a maturity period of 15 years. However, if an investor wants to continue their PPF investment after the maturity period can do so for a block of 5 years and so on. An investor can also keep their PPF account active even after maturity, without making any fresh contributions. The PPF account continues to earn tax-free interest after maturity.
Another important drawback of this investment avenue is its fixed return. In the case of high inflation in the economy, industry experts say returns from this investment avenue will not be able to protect one’s invested wealth.
Although PPF usually offers a steady rate of interest, experts say market-linked instruments like stocks and MFs are known to provide higher returns. For risk-taking investors, experts suggest one could consider investing in equity-linked investments such as stocks and equity-oriented MFs, for better returns. Note that, these investments carry higher risks and, hence, require careful consideration, and risk tolerance levels.