Many Public Provident Fund (PPF) account holders are disappointed as the Government has decided not to increase the interest rate for the April-June quarter of FY 2023-24. PPF depositors will continue to get the same 7.1% interest as earlier even as rates for all other small savings schemes have been increased by up to 10-70 basis points (BPS).
The PPF interest rate has now remained unchanged for 12 quarters in a row. However, there are various reasons why investors should continue to park their savings in the PPF account. The following are five reasons to do so:
1. Tax benefit
This is the biggest reason for investors to continue investing in PPF. While the interest rate of 7.1% may seem low compared to schemes like NSC, KVP, Post Office Time Deposit of 5 years or even some fixed deposit schemes offered by banks, the tax benefit of PPF makes it score higher than various other savings options.
The PPF account comes in the “E-E-E” category where deposits up to Rs 1.5 lakh in a year, interest earned and the maturity amount are free from any taxes.
Moreover, it is estimated that for individuals in the 31.2% tax bracket, the effective PPF interest works out to be 10.32%.
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2. Long-term investment
PPF is a scheme in which you can invest for a long term of 15 years or even more for various financial goals. Even at 7.1% interest, calculation shows that an investor can accumulate a tax-free corpus of more than Rs 40 lakh in 15 years and over Rs 66 lakhs in 20 years by investing Rs 1.5 lakh every year.
3. Guaranteed returns
At a time when investors are growing more concerned about returns from various market-linked schemes, PPF offers guaranteed returns as it is backed by a sovereign guarantee.
4. Loan facility
Depositors can take a loan (up to 25%) against the amount in their PPF account after the expiry of one year from the end of the financial year in which the initial subscription was made. Moreover, if you repay the loan within 36 months, only 1% per annum loan interest rate will be applicable.
5. PPF interest rate may go up in future
As the Government revises small savings rates every quarter, PPF interest may not always be 7.1%. It may go up in future as in past the scheme has offered an average interest of around 8%.