Public Provident Fund (PPF) is one of the most preferred and potent investment tools among the people but can PPF be good for retirement planning? Find out what makes it a good investment for your retirement.
Reasons that deem PPF good for retirement planning:
Safe option: The PPF is a safe option of investment owing to the factor that the sum invested in PPF and the interest accrued is backed by the sovereign guarantee. This 15 years term is not only safe but also helps the investors in planning their retirement. This encourages people who have a low-risk appetite to invest in the scheme without much fear.
Returns earned in PPF: While the maximum amount that an investor can deposit in their PPF account annually is Rs 1.5 lakh, one can keep their account active with just a minimum annual amount of Rs 500. The government decides the rate of interest on the PPF based on the returns on the government securities. Moreover, the tax-free returns on PPF enable to build a solid corpus in the long run and help in retirement planning.
Compounding interests: An investor can avail the benefits of compounding in the long haul. The long tenure of 15 years encourages the funds to grow through compounding and enables the PPF investors to build a corpus for retirement in those years. The other benefit that they can avail through the feature of compounding is that the investors can still earn interests on their existing balance without even making a fresh contribution towards the fund.
Limit on the withdrawal: Although many may consider this feature as a lacking of the scheme, it has its own share of merits. The partial withdrawal rule encourages the investors to control their urge of dipping into a fund that is meant for later years. The limit set doesn’t allow the investor to defeat the purpose of building a strong corpus for their retirement.
The PPF on maturity: The investors can reap the benefits of their deposits on the completion of the tenure of 15 years. They can extend the tenure of their PPF account indefinitely, after the completion of the initial tenure. They can extend the tenure for a stretch of 5 years at a go and need not make any additional contribution towards it besides the basic deposits.
Steady income generation: PPF is primarily a debt-oriented fund in which the savings of the investor is not really exposed to the equity. It is fit for those who seek a steady growth in their funds and have a low-risk tolerance to the volatile equity market. The returns may not be as high as in most equity-related funds but the PPF is potent for generating a steady flow of income.
The trick is building a corpus for retirement through PPF is by investing a higher amount of funds in the initial years to allow their funds to grow in the later years. Find out from us what other investment schemes can be used to develop a functioning retirement plan.Follow Us: