Run under the Ministry of Communications, India Post offers nine small saving investment schemes, including the Public Provident Fund (PPF) and Recurring Deposit (RD) saving schemes, according to its website, indiapost.gov.in. Post office PPF and RD are the two schemes that can be opted for regular deposits. These schemes are popular as an investment option by customers because both can be started with minimal investment amounts. Though you can opt for either of these if you want to invest in a recurring deposit, the features and benefits vary. For instance, Post Office Recurring Deposit is a 5-year scheme, whereas PPF comes with a maturity period of 15 years. PPF also offers tax deduction u/s 80 (C). The interest rates are decided by the government every quarter.
If you are planning to invest, know the best recurring deposit you can have:
PPF offers attractive interest rates to the investor, which are decided by the government every quarter. Currently, it offers interest rate at 8 per cent, whereas the 5-Year Post Office Recurring Deposit is offering 7.3 per cent interest. PPF’s tax-free status gives it a distinct advantage, unlike RD, where there are no income tax benefits extended to RD investors. The only drawback being the cap of Rs 1.5 lakh on the annual investment by an individual. One can open a PPF account with a minimum of Rs 100 and a maximum of Rs 1.5 lakh.
Another benefit is PPF comes with a long maturity tenure. From the first investment, the maturity period is 15 years, which can also be extended for a further 5 years and so on, within one year of maturity. According to India Post, while you can deposit in an RD account on a recurring basis, there are restrictions on withdrawal before the end of the term. For instance, Post Office RDs are for a tenure of 5 years only. Premature withdrawals can also result in a reduced rate of return.
In case of PPF, after the 15 years’ tenure, you can either withdraw the corpus, continue investing in the account or continue with the account without further contributions. However, if you choose to continue investing, an application for extending the account tenure for a block of five years needs to be submitted. Within a year from the maturity date, the application ‘Form H’ has to be submitted. After five years, you can further extend for another five years.
If you do not submit Form H for tenure extension, your account tenure will automatically get extended, but you cannot make further contributions to it. The balance, however, in the account will continue to earn interest. Once this option of continuing without contribution has been selected, you cannot make alterations to the account.
PPF is mostly popular among risk-averse investors who look for assured returns. PPF also suits non-salaried people who are not eligible for retiral benefits. Experts believe that PPF may not be the best option for young professionals looking to save tax. Other tax-saving instruments may give higher returns, such as ELSS funds.