The hike in interest rate has made the PPF the best option for conservative investors. If a couple starts contributing Rs 1 lakh every year, they can together build a tax-free corpus of Rs 61.8 lakh over 15 years. However, this assumes the rate will remain steady at 8.6%, a very unlikely scenario considering the rate is linked to the yield of government bonds. Interest rate cycle is close to peaking out and rates could go down in the coming months
The raising of the annual limit from Rs 70,000 to Rs 1 lakh will benefit investors looking to park money in tax-free avenues. The Rs 2,580 interest earned on the additional investment of Rs 30,000 will escape the tax net every year. What’s more, if the investor claims tax benefits under Section 80C, his effective return will be close to 16.53%.
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The revised rates for small savings are only for this fiscal and the new rates will be announced at the beginning of every financial year. If the PPF rate is 8.6% in the first year but subsequently drops to 7.6%, the corpus at the end of 15 years would be smaller by about Rs 97,500 than what it would earn under the 8% offered till now.
After the initial 15 years, one can keep extending the deposit for 5 years at a time.
Also Read : Withdrawing from PF account is not advisable
Categories: Personal Finance