The key benefits of investing in the PPF (public provident fund) relating to safety and tax-savings are well known. However, there is limited awareness about certain other aspects.
For example, the rules state that your PPF balance cannot be attached under any court decree for recovery of dues. This apart, the framework has a provision to allow guardians to open accounts on behalf of those with ‘unsound’ minds, besides minor children.
The PPF is better known for lucrative tax-free returns and deductions under section 80C that it offers. At present, it offers a tax-free return of 7.9 per cent annually. Your contribution of up to Rs 1.5 lakh a year is also eligible for a tax deduction under section 80C.
Read on to understand the benefits of these lesser-known provisions.
Immunity against attachment
A relatively lesser-known benefit, this is one of the key features of PPF. “Amount standing to the credit of any account holder shall not be liable to attachment under any order or decree of any court in respect of any debt or liability incurred by the account holder,” the rules state. In other words, a subscriber will not have to forgo the amount invested in a PPF even if other assets are repossessed by lenders or have to be liquidated to pay off the dues. This can be a huge source of comfort for individuals, especially businesspersons wishing to financially secure their family’s interests even in times of financial crises.
“However, this should not be the sole factor tilting your decision in favour of investing in PPF. It is needed in your portfolio to achieve long-term goals such as retirement and children’s higher education. No other instrument, barring employees’ provident fund (EPF) contribution, offers comparable tax-free, secure returns,” says Suresh Sadagopan, a certified financial planner and founder, Ladder7 Financial Advisories.
Long-term investment for the specially-abled
PPF rules also allow an individual, who is a guardian to a minor or a ‘person of unsound mind’, to open a PPF account on his/her behalf. Since many individuals do not have access to institutionalised estate planning mechanisms, this account can serve as a long-term financial safeguard for their future. “This option ensures peace of mind to families who want to create a long-term corpus for their differently-abled children. However, they need to bear in mind that contribution to PPF should be part of the overall asset allocation of the child,” says Rohit Shah, Founder and CEO, Getting You Rich, a financial planning firm.
The flipside? The limited liquidity it offers, which can be a hindrance for such individuals who might need to dip into their reserves for recurring healthcare expenses. Therefore, guardians must have a well-thought-out financial plan in place. “Families will need to keep aside funds in liquid instruments for short-term needs,” Rohit adds. You can look at fixed deposits or liquid funds for the purpose. They can also take loans against PPF deposits.