Continuing the series of articles that talk about the pros and cons of tax-saving investments, let us now look at the Public Provident Fund (PPF). The PPF is another tax-saving investment for deductions under Section 80C that has a large appeal. It is generally the first tax-saving investment that people tend to make because it comes recommended by their elders. But it is important to understand the pros and cons before you invest in it.
Pros of Public Provident Fund
- Tax-free earnings upon maturity
- Guaranteed returns as set by the government every year
- Complete capital protection
- Facility to make partial withdrawals and loans
- Easy to open an account from banks or post offices
- Minimum investment of Rs 500 only per year
- Option to extend tenure with or without contributions
Cons of Public Provident Fund
- Interest rate may not be able to beat inflation
- Lock-in period of 15 years
- NRIs and HUFs cannot open an account
- Only one account allowed for every citizen
- The account cannot be closed until maturity
The PPF has a some advantages as well as disadvantages when compared to other options like tax-saving fixed deposits and ELSS mutual funds. PPF is one of the prefered options because it is something that our parents and grandparents have used to save taxes. It does have its benefits, but young investors should carefully consider other options as well before they invest in it.