Saving and investing for retirement are big responsibilities for working professionals. A lot of people are often confused about which investment instrument to choose from in order to accumulate the best possible retirement corpus.
Employee Provident Fund (EPF) and Public Provident Fund (PPF) are two long-term debt investment instruments that are extremely popular. Aside from offering guaranteed returns, these investment options also help in saving on income tax.
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Salaried individuals can take advantage of both EPF and PPF to accumulate a large amount in their retirement kitty. With the power of compounding, even small investments in these vehicles over a period of time result in a big corpus by retirement time.
Public Provident Fund (PPF) is a government-backed small saving scheme that offers moderate returns and is loaded with tax benefits, tax exemption and security to capital. The interest earned as well as the returns are not taxable under the Income Tax. The investments in PPF can be made in a lump sum or in a maximum of 12 instalments. The minimum investment allowed is Rs 500 and the maximum is Rs 1.5 lakh for each financial year. The current interest rate is 7.1% p.a and the tenure of the PPF account is 15 years.
The PPF rules do not allow premature withdrawal but the account can be closed at an earlier date after five years upon completion of some terms. For example, if the account was opened on June 1, 2022, then withdrawal cannot be made before April 1, 2028.
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A PPF account holder may withdraw the entire amount and close it before 15 years in case they need money for treatment for their dependents such as spouse, children or parents in life-threatening medical emergencies. The account can also be closed if the account holder or children need the money for higher studies. A change in the residential status of the account holder can also be used as grounds for premature withdrawal.
According to investment experts, account holders who wish to close their PPF account prematurely will get 1% less interest rate than the prevailing rate. However, financial planners say it PPF, which is an important instrument for long-term wealth creation and beating inflation, should be held till maturity to build a healthy sum. One can use free PPF calculators available online to check that a monthly investment of Rs 12,500 in a PPF account at a current rate of 7.1% will turn to Rs 39,44,600 in 15 years time.
