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A Beginner's Guide to the Public Provident Fund (PPF) for Long-term Savings

Last updated :
March 10, 2024
/

minutes read

Introduction

When it comes to long-term savings, one of the most popular investment options in India is the Public Provident Fund, commonly known as PPF. It's a government-backed scheme that offers a safe and secure way to build your savings over time. In this guide, we'll give you a beginner's overview of what the PPF is all about and how you can benefit from it.

What is PPF?

PPF is a savings scheme initiated by the government of India in 1968. It is a long-term investment scheme that offers a fixed rate of interest and tax benefits. The scheme is managed by the Ministry of Finance and is available in all post offices and authorized banks across the country.

Importance of Long-Term Savings

Long-term savings are crucial to achieving your financial goals, such as buying a house, starting a business, or planning for retirement. Investing in PPF is a great way to build your savings over the long term, with a low-risk and high-return investment option.

Benefits of Investing in PPF

There are several benefits to investing in PPF, including:

  • Tax benefits: PPF investments are tax-deductible under section 80C of the Income Tax Act.
  • Guaranteed returns: The government sets the interest rate on PPF every quarter, which is fixed for the entire term.
  • Low-risk investment: PPF is a low-risk investment option since it is backed by the government of India.
  • Long-term savings: PPF is a long-term savings scheme that encourages disciplined savings.

Eligibility and Account Opening

Who is Eligible to Open a PPF Account?

Any Indian citizen who is a resident of India is eligible to open a PPF account. Parents can also open an account for their minor children.

How to Open a PPF Account

You can open a PPF account at any post office or authorized bank by filling out the account opening form and submitting the required documents.

Documents Required for Account Opening

The following documents are required to open a PPF account:

  • Identity proof (Aadhaar card, passport, PAN card, etc.)
  • Address proof (electricity bill, telephone bill, etc.)
  • Passport-sized photographs

Deposits and Withdrawals

Minimum and Maximum Deposit Limit

The minimum deposit amount for a PPF account is Rs. 500, and the maximum deposit amount is Rs. 1.5 lakh per financial year.

Depositing Money in a PPF Account

You can deposit money in a PPF account through cash, cheque, demand draft, or online transfer.

Partial and Complete Withdrawals

You can make partial withdrawals from your PPF account after completing five years from the date of account opening. Complete withdrawals are allowed after the account matures, which is 15 years from the date of account opening.

Premature Closure of the Account

You can close your PPF account before maturity only in cases of serious illness, higher education expenses, or on the death of the account holder.

Interest Rates and Tax Benefits

Interest Rates Offered on PPF

The interest rate on PPF is fixed by the government every quarter. For the financial year 2022-23, the interest rate is 7.1%.

Tax Benefits of Investing in PPF

Investing in PPF offers tax benefits under section 80C of the Income Tax Act. The principal amount invested, interest earned, and maturity amount are all tax-free.

Comparison with Other Investment Options

Compared to other investment options such as fixed deposits, mutual funds, and stocks, PPF offers higher interest rates, guaranteed returns, and tax benefits.

Investment Option Risk Level Return Rate Tax Benefits Lock-in Period
Public Provident Fund (PPF) Low 7.1% p.a. (as of April 2023) Tax-exempt under Section 80C 15 years
Equity Mutual Funds High Varies based on market conditions Tax-exempt on long-term capital gains None
Fixed Deposits Low Varies depending on bank and tenure Taxable Varies depending on bank and tenure
National Pension Scheme (NPS) Medium Varies based on market conditions Tax-exempt under Section 80C and Section 10(12A) Till retirement
Unit Linked Insurance Plans (ULIPs) Medium to High Varies based on market conditions and insurance cover Tax-exempt under Section 80C and Section 10(10D) 5 years

Note: The above table is for illustrative purposes only and the returns, tax benefits, and lock-in periods may vary based on the investment option and market conditions.

PPF for Young Employees and New Graduates

Why PPF is a Suitable Investment Option for Young Employees and New Graduates

PPF is a great investment option for young employees and new graduates for several reasons:

  • Long-term savings: Starting early and staying invested in PPF can help you build a significant corpus for your future financial goals.
  • Tax benefits: Investing in PPF can help you save on taxes and increase your take-home pay.
  • Low risk: PPF is a low-risk investment option that is backed by the government, making it a safe and secure investment option.
  • Discipline: Investing in PPF can help you develop the habit of disciplined savings, which can help you achieve your financial goals in the long run.

Tips for Maximizing Returns on PPF Investments

Here are some tips for maximizing returns on your PPF investments:

  • Start early: The earlier you start investing in PPF, the more time you have to build your savings and earn compound interest.
  • Stay invested: It's important to stay invested in PPF for the long term to maximize returns.
  • Invest regularly: Investing regularly in PPF can help you achieve your financial goals faster.
  • Check the interest rate: The interest rate on PPF changes every quarter, so it's important to keep track of it and invest accordingly.

Importance of Starting Early and Staying Invested

Starting early and staying invested in PPF can help you build a significant corpus for your future financial goals. The longer you stay invested in PPF, the more time your money has to grow and earn compound interest.

Conclusion

In conclusion, investing in PPF can be an excellent option for those looking to build their long-term savings. With its guaranteed returns, tax benefits, and flexibility in deposit and withdrawal options, it is a safe and secure investment that can help you achieve your financial goals.

To recap, some of the benefits of investing in PPF are:

  • Guaranteed returns
  • Tax benefits under Section 80C of the Income Tax Act
  • Long-term savings with a fixed interest rate
  • Flexible deposit and withdrawal options

If you are looking for a low-risk investment option that offers good returns, PPF could be the perfect choice for you.

We hope that this beginner's guide to PPF has helped you understand the basics of PPF investments and its benefits.

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Shuaib Azam
Shuaib is a Marketing & Growth lead at Hubble. When he isn't working on growth initiatives, Shuaib writes fiction and doodles space monkeys.

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