PPF as a tax saver and investment option
PPF as a tax saver and investment option
July 20, 2011 / 17:10 IST
By BankBazaar.com
1. What is the difference between EPF and PPF?Where Employees Provident Fund serves all salaried employees, the Public Provident Fund serves everyone - the employed, the unemployed, even children and housewives. The access to the fund is also quite easy as any post office and some State Bank of India branches can help you open the fund. The purpose of a provident fund is to provide individuals some form of savings for their retirement years. Naturally, the EPF and PPF are for long term savings.2. What kind of income can I one expect from PPF?The returns from the fund is in the form of interest paid. The interest rate currently is 8% compounded annually. The interest however is not paid out but is compounded (like a bank recurring deposit) till the maturity or withdrawal. With the current levels of inflation real and stated, the returns from the PPF fund could be low. This is a typical asset class mismatch.3. Is there any capital appreciation?Being a typical debt investment, there is no capital appreciation for the investment.4. What is the risk involved with this investment?There is hardly any risk for the capital or the returns from the PPF deposit. The risk however is with inflation which could possibly reduce the value of the returns in the long term and the other disadvantage is the long lock-in period of 15 years.5. How about liquidity of the investment?The PPF gives very little liquidity too. The fund, as mentioned earlier, is for a minimum of 15 years. This can be extended for a further period of 5 years each indefinitely.The liquidity is in the form of withdrawals that can be made from the fund from the 7th year onwards. The withdrawal value is however limited to a maximum of 50% of the average of the last 3 years
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