PPF Tips: Investing in PPF? Avoid these 5 mistakes to get better returns..
If you are looking to save on taxes while making a safe investment, the Public Provident Fund (PPF) is one of the most popular schemes available. Investing in this government small savings scheme ensures capital safety, offers tax exemptions, and provides the benefit of compounding over the long term. Currently, the PPF offers an annual interest rate of 7.1%. Investments, interest earned, and the maturity proceeds are all tax-free under this scheme. This is why many people open a PPF account as soon as they start their careers and continue investing in it until retirement.
However, simply opening a PPF account is not enough. Making certain common mistakes can affect the interest earned, tax benefits, and other advantages. Let us look at five major mistakes that every PPF investor should avoid.
1. Don't forget to deposit at least ₹500 annually
To keep the PPF account active, it is mandatory to deposit a minimum of ₹500 during each financial year. Failure to deposit this minimum amount can lead to the account becoming inactive. Consequently, you would lose out on making regular investments and enjoying various benefits of the scheme. However, the account can be revived by paying a penalty and submitting an application.
2. Investing after the 5th of the month
PPF interest is calculated based on the balance held between the 5th and the end of the month. If you deposit money between the 1st and the 5th, you start earning interest from that very month. However, if you invest after the 5th, you will not earn interest for that month; the interest calculation will begin from the following month. Therefore, it is wise to invest before the 5th of the month to maximize returns.
3. Investing more than ₹1.5 lakh in a year
The maximum amount that can be deposited in a PPF account during a financial year is ₹1.5 lakh. If you deposit an amount exceeding this limit, the excess amount will earn neither interest nor any tax benefits. Keep in mind that this limit is determined by combining the deposits in your own account with those in PPF accounts opened in the names of your children.
4. Opening more than one PPF account in your name
Many people believe that opening multiple PPF accounts across different banks or post offices can yield greater benefits. However, according to the rules, an individual can hold only one PPF account in their name. If more than one account is discovered during scrutiny, the additional account(s) may be deemed non-compliant, potentially affecting the benefits accrued on them.
5. Withdrawing money or closing the account without understanding the rules
The PPF scheme has a lock-in period of 15 years. In specific circumstances—such as a serious illness, a child's higher education, or relocation abroad—the account can be closed prematurely after the completion of five financial years. However, the government deducts 1% from the applicable interest rate upon premature closure. Therefore, withdrawing funds in haste without understanding the rules can result in a financial loss.
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