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Starting investment at the start of financial year will provide the investor with the required time to accumulate the corpus as per the requirement. Here is a look at the situation for the public provident fund (PPF) because there is a change once again in the interest rates offered for the financial year.
Features: The PPF is a long-term investment option, available for every individual, irrespective of whether they are salaried or not. With tenure of 15 years and an option of extension in blocks of five years any number of times, this scheme allows investment for a long term.
Thus, it becomes a route whereby, the investor can accumulate money for a long period of time and can become one of the options used to meet their retirement planning needs.
Since the returns are tax free and the amount compounds in the scheme, it offers significant benefits for those looking to grow their money over a longer time period.
Maximum amount: The maximum amount that can be contributed each financial year into PPF has been raised to Rs 1 lakh from December 2011. In the coming financial year too, the entire amount of Rs 1 lakh can be used by the investor. Many people confuse the situation between the tax benefit and the amount that can be invested. So, for example, if a person has Rs 50,000 of other tax-saving investment, then they will just put the remaining amount of Rs 50,000 available as a deduction under Section 80C into this instrument.
If you are looking just at the tax angle, then this would be an appropriate way to go about things.
However, if you are considering building funds for your retirement, then you might want to make the full use of the amounts that are available under the PPF, even though a part of it might be an extra investment as far as the tax deduction under Section 80C is concerned.
There are a couple of reasons why this kind of higher contribution might be a good idea. The first is that the amount actually compounds under the PPF scheme. So, a higher balance in the account is better for the individual investor over a period of time, especially, in the later years, when there is a large amount of earning from the fund. The second thing is that the returns are tax-free, which means that pre tax returns are significantly higher.
Rate of interest: There has also been a change in the rate of interest in the past four months. Earlier, the rate was 8 per cent, which was raised to 8.6 per cent from December 2011. There has been a further rise in the rates to 8.8 per cent from April 2012. This is a significantly high rate and the individual investor should make the best use of the entire situation. It has to be remembered that the interest is calculated on a monthly basis, though credited to the account once a year. It is calculated on the balance present on the fifth day of every month in the account.
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