Month: October 2021

Public Provident Funds (PPFs) are secured saving options you can open at banks or Post Office, with fixed interest offered by the government. Interest rates of PPF accounts are changed quarterly by the government. Now, the RBI has decided to keep the rate unchanged at 7.1% for the upcoming 3 more months. It is a secured fixed income option, but you should think twice before investing here, as the inflation rates in India are not in a favorable position now. A PPF account usually is locked for 15 years, to mature. So, if you get a 7.1% interest and the inflation stays around 6%, then you are not making much profit.

As the inflation rates will change, the union government will also modify the interest rates. But, in whatever case, the profit you will be making in the long-term will not be very high. This is the reason, fixed interest schemes like PPFs are commonly referred to by some people as savings schemes, and not very profitable investment schemes. However, other investment opportunities in fixed and variable returns must be analyzed wisely before investing anywhere. Depending on your requirement of assurance and risk appetite, you can start investing.

Compare with other fixed-income options

If you are interested in PPF for its assured income, you must compare it with other investments with fixed interest rates like FD or Post Office TD accounts. Now, the TD rates are staying around 5.5% to 6.7%, from 1 year to 5 years investment in TD or FD schemes. SBI FD interest rate starts from 5.3%. But If you choose a PPF scheme, you will get a better interest of 7.1%, although you will have to keep the scheme alive for 15 years. Only after 5 years, you can withdraw the PPF scheme with reduced interest. In FD you need to deposit the money at once, but in PPF the deposit time is very flexible. There are also some LIC schemes for long-term periods (15 years or more) like Jeevan Lakshya, Jeevan Lakh, Jeevan Umang, etc., with fixed income. Keeping money at LIC always gives you an additional opportunity for life insurance, unlike a PPF account scheme. But PPF’s interests are lucrative.

For example, if you are choosing LIC Jeevan Lakshya for 15 years with Rs. 1,50,000 plan at you 30 years age, you will have to deposit the whole money within first 12 years. After 15 years when the policy will mature, you will get approximately Rs. 2,37,000, if you are alive (Source: All In One Calc, LIC). But in the case of a PPF account, if you invest the same amount of Rs. 1,50,000 for 15 years, you will get Rs. 2,71,214 after maturity. So the difference is in LIC is that you will have the insurance opportunity, but will get better interest in PPF. So, choose wisely according to your requirements.

Compare with variable income options

Mutual funds or SIPs also offer similar kinds of flexible or systematic investment habits. In SIPs your returns are not secured, you might earn better than a PPF, but can also lose your money due to an equity market crash. But a PPF account’s returns will be assured by the RBI. However, the falling interest rates due to inflation and the pandemic is concerning some investors now.

Axis bluechip, DSP equity fund, Motilal Oswald focussed 25 funds, ICICI Prudential Bluechip are some of the best bluechip SIPs for 2021 suggested by policybazaar.com, – that can fetch you better returns with monthly investment, in shorter terms. But you must have a risk appetite to invest in mutual funds or SIPs. Gold is also a lucrative asset now, with RBI SGB, Gold ETF, or digital gold you can invest a very small amount monthly or any time, with no burden of lump-sum investment. You can start investing in digital gold from Rs. 100, Gold ETFs are also affordable funds. Risk is much lower in gold or long-term investment, and it will also diversify your investments.

Due to the pandemic, the interest rates for PPFs are considerably low now, according to the government’s monetary policy. The rates are not expected to reach the Pre-Covid rates soon. If you see the interests on a long-term basis, the amount can be lesser than equity investments or gold investments. Because after 15 years, when the PPF account will be mature, domestic inflation will be at much higher rates.

Yet, why are PPF accounts preferred by investors?

A PPF account provides the facility of both fixed and flexible deposits. It means you can deposit the money any time in an FY, there will not be any burden of mandatory investment. But if you have a fixed income monthly and looking for a regular or systematic investment habit, you can deposit money regularly. You can link your PPF account to another savings account, from where a fixed amount of money will be deposited to your PPF account monthly or bi-weekly, or quarterly, as you wish.

If you are not good at savings by yourself, this is a good opportunity for your investment. The money will be credited to your PPF account automatically even if you do not visit the Post Office or the bank physically, or do not deposit money online every time. Even if you forget to deposit, it will not be a problem as the credit amount will be auto-generated. Also, some people choose bank FDs when they earn a lump sum amount at once. But with better interests, you can now deposit the money in your PPF account, as there is no bar on the number of money deposits in an FY. However, the systematic investment option is the USP of SIPs, which you can explore.