Don’t Underestimate The Power Of PPF

The simplest of things are usually taken for granted, but the simpler the product, the more successful our investments. No instrument can epitomize simplicity better than a PPF (Public Provident Fund). This half a century old product not only creates guaranteed wealth but mobilizes savings in the most cost effective manner. PT Expert Columnist, Mehran Felfeli, Financial Consultant and owner of investment and consultancy firm, ‘Ethix’, explains how investing in PPFs ensures wealth creation.

Prematural Withdrawl from Public Provident Fund or PPF copyA minimum yearly deposit of Rs. 500 is required to open and maintain a PPF account, and a maximum deposit of Rs. 1.5 lakhs (as on financial year 2015-2016) can be made in a PPF account in any given financial year. The subscriber should not deposit more than Rs. 1.50 lakhs per annum as the excess amount will neither earn any interest nor will be eligible for rebate under Income Tax Act. The amount can be deposited in lump sum or in a maximum of 12 per year.
The government of India decides the rate of interest for PPF account. The scheme is fully guaranteed by the Central Government. The current interest rate effective from 1st April, 2016 is 8.1% per annum (compounded annually). Interest is paid on 31st March every year and is calculated on the lowest balance between the close of the fifth day and the last day of every month.

PPF inculcates the discipline of savings, because once you invest, it is locked for 15 years and the money can be withdrawn in whole only after its maturity period. That means, you can’t touch your investment for this period, which makes sure that your money grows without any hindrance. Most of the small savings of the common man are withdrawn at some point in time in need just because there is no such lock in period. This ensures a forced manner of savings. Did you know an investment of Rs. 1.5 lakhs ever year for 15 years @ 8.1% p.a creates a decent corpus of Rs. 41 lakhs? Now that’s the power of compounding.

In PPFs, the annual contributions qualify for tax rebate under Section 80C of Income Tax Act. Tax bracket for PPF is EEE – i.e. Exempt! Exempt!! Exempt!!! So contribution is exempted under 80C, interest earned and withdrawal are tax exempted. Interest earned is fully exempted from tax without any limits.
There is a reason why our elders first opened a PPF account because they knew that there is no product as secure, tax efficient and cost effective as a PPF!

Mehran Felfali
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About Mehran Felfali

Owner of investment and consultancy firm – ‘Ethix’ is open to answering any relevant queries on handling your finances. Mail him at: or visit his website on

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