PPF (Public Provident Fund), A Poor service man best investment option for long run for long time. Earlier it was the investment tool used by many of older generation government service man to complete the many of the responsibilities of life like Marriage of their daughter, Higher education of son, Buying House etc. Once the PPF interest rate are started declining , the most affected class is the Government service class.
The current Interest rate on PPF (Public Provident Fund) is the lowest in 40 years, which is offering mere 7.90% at present. With the negativity , it is believed that the rate on PPF interest will decline further as there are indications that the rates of small savings schemes could see more cuts in the coming months as bond yields decline further.
Now what should such people do with their investment on PPF ? Should they withdraw their investment from the PPF and invest the money somewhere else to get better returns ?
As the return are safer and still not completely link to market, still one may prefer to invest in it. The tax-free status of the PPF also there which makes it the best debt option for investors. Still higher than Bank Fixed deposit and return from the market. If consideration of inflation are taken the real rate of return of the PPF is a healthy 4.25%. Most importantly , An assured Return.
Check out the various Investment option as compare to PPF
Benchmark 10 Years Bond
Another investment option is benchmark 10-year bond yield. The return on 10 years Bond yield are 6.8% which is approx 1% lower than PPF interest rate.
Bank Fixed Deposits
Average Interest rate offering: 6.5-7.5% (Check Out Latest Fixed Deposit rate of Bank in India here)
Taxation: Interest income taxable as per the IT Slabs. Read : How To Fill 15G/15H Form Correctly in Banks To Save TDS ?
Although the Fixed deposit return are assured return but consideration of Taxation portion the net return is very less as compared to PPF which is tax free. The FD return with Income tax on it is approx 2% lesser than the existing rate of interest charged on Fixed deposit.
Advise – This option is good for sub 2.5 lacs tax bracket like senior citizen, House wife , small employees, low income group etc.
Sukanya Samrisddhi Yojana
Read : How To Open Sukanya Samriddhi Yojana Account ?
Average Interest rate offered : 8.4% (For 2016-17)
Income Tax : Tax free corpus
This scheme is open for all the citizen of India having daughter. Return on Sukanya Samriddhi Yojana is better than PPF and tax free. One may choose this option other than PPF. Only the disadvantage of investing in this scheme is that, the lock-in period is linked to the age of the girl and you will not be able to access the money before she turns 18.
Advise: Good investment option for long term investment goal like marriage of Girl child, Higher education of daughter and best for people with daughters aged below 10
Voluntary Provident Fund
Read : What is the Difference Between EPF and EPS ?
Average Interest rate : 8.65% (For 2016-17)
Tax Option: Tax free corpus
This is the best option for salary holder. All the eligible salary individual with EPF option may opt this option for long term investment. Withdrawal is also easy and investment can be done at at interval of time. There are option to transfer the fund from PPF to VPF to get the best return. Voluntary Provident Fund (VPF) investment option can be increased any time. Rate on EPF is almost constant and investment return are also tax free with assurance.
Currently the fund on EPF may be invested in Equity & Stocks. The EPFO has allowed up to 10% of incremental in -flows to be invested in stocks. Returns could be changed as per the condition of market.
Advise : In my view the best alternative option for PPF especially for salaried. Even I opt for the same option as 20% Basic pay is being invested in VPF each month. It will be easier as the Net salary being paid after deduction of VPF. It’s easier in investment and doesn’t give burden in long run.
Read : How To Claim Provident Fund Withdrawal in Just 3 Hours ?
Short Term Debt Fund
Returns: 8.83%
Taxation : No Tax after three years of investment after indexation benefit
This option is not for every individual. It is a debt fund where investor invest for higher returns. Short-term debt funds can generate 8-8.5% returns with no limit on investment amount. Income generated are taxable but may be waived if eligible for indexation benefit i.e. if the funds are held for 3 years.
Advise : Little complicated investment option for straight investor. Return are also not assured as like PPF.
Arbitrage Funds
Returns: 7.73% past three years
Taxation : Tax free after one year
As like short term debt fund, the arbitrage funds are also not easier for straight investor. These funds invest in equities and derivatives to earn risk-free returns. Return on these investment option are not steady as like PPF and can be decline or incline.
Advise : Not advisable for Simple investor.
Read : Compare Best Saving Schemes To Invest
Monthly Income Plan
Average Tentative Returns : 11.30% for past three years
Taxation : Tax free after indexation if held for three years and more
This is investment in Mutual Funds. MIP funds invest only a small portion (15-20%) of their corpus in equities with rest in debt. There are many MIP of different mutual fund houses which have given more than 10% of return in past. Returns are higher but volatile. Not good for Senior Citizen, House wife or person with small income.
Advise : This is indeed good option for salaried individual but not good for Senior Citizen, House wife or person with small income.