Provident Fund (PF) or Public Provident Fund (PPF) is a popular choice for many individuals seeking tax-saving benefits and securing financial security in the long term. PPF provides a secure investment with government backing and choosing between the old and new tax regimes determines the tax benefits one avil legally.
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What Is a PF?
Provident Fund (PF) is a savings plan for employees. Both the employees and their employers regularly put money into this fund to ensure financial security after retirement. A part of the employee’s salary goes into the PF account, along with the employer’s contribution, which grows over the years with added interest. One can use this fund when after retirement or for specific needs like buying a home, to fund education or emergencies.
Types Of PFThere are two types of PFs in India, such as the Employees’ Provident Fund (EPF) for organised sector employees and the Public Provident Fund (PPF) for all employees.
Benefits Of Provident Fund (PF)
Compounding Benefit
Saving in PF account annually for 15 years at an average interest rate of 7.6 per cent can result in a substantial corpus of around Rs 42.5 lakh. The compounding effect is evident and can be benefited without any risk.
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Flexibility
PF offers flexibility after the initial 15-year period, allowing indefinite extensions in blocks of 5 years. Investors can decide on new contributions and also can make partial withdrawals annually, enhancing the PPF’s adaptability as a long-term savings option.
Low-Risk High Returns
While PPF provides stability, those aiming for higher inflation-adjusted returns for long-term goals may consider exploring equity exposure through instruments like Equity Linked Saving Schemes (ELSS). Balancing both PPF and equities in your portfolio can offer stability and potential for higher returns, creating a well-rounded and strategic approach to long-term savings and investments.
Tax Benefits
The provident fund follows the exempt-exempt-exempt (EEE) model and offers comprehensive tax advantages throughout the investment’s life cycle. The annual interest and the maturity corpus enjoy tax exemptions under section 80C, making PPF one of the few products with such extensive tax benefits.
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In the old tax regime, investing in PPF under section 80C of the Income-tax Act can give tax benefits. The interest rates are linked to government securities, reviewed quarterly, and currently stand at 7.1% from January to March 2024. To keep your PPF account active, a minimum annual deposit of Rs 500 is required, with a maximum limit of Rs 1.5 lakh for deposits in a financial year.
