Public Provident Fund As A Retirement Tool

A Public Provident Fund, popularly known as PPF is a long-term savings instrument, and is a hot favourite amongst risk-averse investors because of its combination of safety, returns and tax savings. More so, because of these very factors, it is popular as a retirement tool as well. After all, retirement is that phase of life where you could do with lesser troubles and enjoy the second innings of life at peace.

Chenthil Iyer, financial planner and Founder, Horus Financial Consultants, explains that a “Provident Fund (PF) deduction happens at the income source itself. Therefore this is the money that is earned but not received. Generally our lifestyle expenses get adjusted to the income that is received and hence it is better that some part of the income is not received at all.”

Salient Features of a PPF Account:

• A PPF account can be opened in any nearby post office, leading banks and online

• A minimum premium of Rs 500 and a maximum of Rs1.5 lakh is required in a year. 

• The account holds valid for a period of 15 years. Post this, you can either withdraw the maturity amount and start afresh, or extend your account after the tenure for one or more blocks of 5 years

• You can also choose to stop investing or continue 

• If you choose to continue investing, then a Form H needs to submitted to your bank before the end of 1 year post maturity

• A PPF account falls under exempt-exempt-exempt (E-E-E) category under Section 80C of Income Tax Act

• Rate of return depends upon the average bond yield of the previous year, and is subject to change by the Government of India

These are exactly the reasons why PPF accounts are considered a safe investment tool by many investors. Although many withdraw the amount post maturity, but it is a fact that on extending the account for just 2 blocks of five years each, the final amount could be thrice higher than the receiving amount at the end of 15 years. 

Iyer also added, “It is better if a certain amount of money is accumulating silently at a fixed rate of interest with the power of compounding and the tax free nature of the instrument adding a lot of fire power to its growth over a long period of time! Those who do not have the advantage of PF, especially the non-salaried class of people should definitely use PPF in the same manner to accumulate for retirement.”

Therefore, if you are a salaried individual and in the process of planning your retirement, you must start investing in a PPF account to ensure long-term savings.