Six tips to make the most of your PPF

The stock market, despite the probability of giddy returns, can give you the heebie-jeebies due to the wild swings in share prices. Fixed deposits can be a turnoff because the interest earned is taxable. For investors seeking the best of both worlds, there is the Public Provident Fund (PPF). Wrapped in safety and free of tax, the PPF is almost a godsend for risk-averse investors.


“PPF is an excellent tool for long-term investment. It is risk-free as it is backed by the government,” says Harsh Roongta, CEO of apnapaisa.com. It is especially suitable for self-employed professionals and small businessmen who are not covered by the Employees' Provident Fund . “Those who don't have access to an organised setup can realise long-term goals through the PPF,” says Surya Bhatia, a Delhi-based financial planner .

Don’t think of your PPF account as a stodgy investment option where you put away something once in a year. With a little planning, it can be an important part of your financial portfolio. Here are a few tips that will help you make the most of this option:

Maximise limit:

The 8% compounding interest you earn on the balance can work wonders for you, especially because a PPF account is a long-term investment. There is an annual limit of Rs 70,000 that one can invest in the PPF. You may feel it is a waste to be investing Rs 70,000 in this option when your Rs 1 lakh tax saving limit under Section 80C has already got exhausted. But don't let the tax savings alone guide your decision. Invest as much in PPF as you can afford to. If you contribute Rs 70,000 a year to your PPF for 15 years, your investment would grow to a gargantuan Rs 22.92 lakh on maturity.
And remember, this is tax-free money. In the 30% tax bracket, this is equivalent to receiving almost 11.5% interest on a bank fixed deposit. “The PPF offers the highest post-tax returns among all fixed income options since no tax is levied on the investment, income and withdrawals,” says Bhatia.

Distribute income:

There are benefits in store if you open a PPF account in the name of your spouse or child. Tax laws say that if any money gifted to a spouse is invested, the income from that investment is clubbed with the income of the giver. But since PPF income is tax free, it will not push up his tax liability. This way, you can invest more than Rs 70,000 a year in this tax-free haven and benefit from its various advantages.

This strategy does not work in case of minor children though. You can open a PPF account in the name of a minor child but the combined contribution to your and your child's account cannot exceed Rs 70,000 a year.

Invest for children:
However, if the child is over 18 years, up to Rs 70,000 a year can be invested in his name separately. The taxman insists on clubbing the income of minor children with that of the parent. But once they turn 18, they can have a separate income. “A PPF is an ideal way of building a fund for your child's educational needs instead of falling for all the ‘high-commission-paying’ child plans of insurers,” says Sandeep Shanbhag, director of Wonderland Consultants, a tax and financial planning firm. “In a child plan, you are not sure of the final returns.