There is some good news for millions of small investors who have invested or investing in PPF. Government of India on 11th Nov 2011 raised interest rate on the Public Provident Fund (PPF) to 8.6 per cent, from 8 per cent earlier. Also the investment limit is raised from Rs. 70,000 per year to Rs. 1 lakh per year. This means now investors can get TAX exemption of Rs. 1 lakh under section 80C. Apart from that now agent commission on PPF and senior citizen schemes will go off.
According to government the decision to hike interest rates and raised investment ceiling will make PPF more attractive and offers investors to get a better deal in today’s raging inflationary scenario. But is it so?
Let’s take an example, if you invest Rs. 5000 every month i.e. Annual Rs. 60,000 for 15 years (PPF has lock in period of 15 years). Then previously with 8% compound interest you used to get return Rs. 1759456. Now with raised interest rate of 8.6% you will get Rs. 1854065. Not a big difference!!
No doubt PPF can be consider one of the best tax saving financial product in India, But it cannot beat inflation in long run. The only benefit I can see is TAX exemption of Rs. 1 lakh. I seriously doubt if anyone will consider PPF to build serious wealth however it may be considered as a perk from government for small investors.
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