Top advantages of Public Provident Fund and Post Office schemes

We have all heard of the Post office schemes and the Public Provident Fund. Of these, the PPF is the most pragmatic hope for the middle class. This article is an attempt to focus on the basics of these savings instruments in some detail.


The Public Provident Fund(PPF) is a wonderful scheme. The biggest advantage of this scheme is that the returns are totally exempted from Income Tax. It is very unlikely that the Government of India will touch this scheme and make it taxable, on lines similar to which it is now seeking to tax all returns from Mutual Funds, even while making some improvements in the tax slabs and totally removing all concessions under the New IT policy.

Let us have a look at details of the PPF Scheme, the Recurring De[posit Scheme, and the Security of Post office deposits. all of which arre good ways to save small amounts of money

PPF Scheme details

This is the best scheme for middle class people. At the moment, this remains the only scheme that has a provision that is very interesting. The provision is that neither the principal nor the interest is taxed on maturity. Though the bank or the Post Office where the PPF account is opened will collect copies of the depositor's PAN Card and the Aadhar Card, the entire maturity proceeds after the full fifteen years are not taxable at all. However, when converted into a fixed deposit, the interest becomes tradable. The PPF can be extended by a period of five years. This is a very good provision.

If one has a girl child, it is wise to start a PPF with the girl child as the nominee. Even in the event of unlikely death, the child will be fully protected, as the payment to keep the PPF account fully active is just Rs.1000 per annum. Hence, the individual need not worry, that is, the surviving member after the death of the depositor. The nominee will be the rightful claimant of the PPF deposit after the girl attains the age of 18. However, it is wise to keep on extending the scheme to 25 years and then claim the corpus.

The corpus comes in handy for the girl at the time of marriage. The corpus can be invested in PPF again in the name of the child of the girl, or in a Fixed deposit. Today, Income Taxinterests have increased and under the new scheme, the benefits are very good. Hence, even if the additional income through the fixed deposit interest is added, twenty years from now, (for example), the exemption limit will be easily Rs.10 lakh.

Hence, the PPF is the best scheme for futuristic savings. One should also note that the individual can have only one PPF account. It is better to open the PPF in a leading bank like the Bank of India or Union Bank of India or Canara Bank. State Bank of India is also fine, but it is a good idea to choose a branch where the crowd is less. Once the account is opened, online deposits are allowed and after a while, the depositor needs to just update the PPF passbook. That is all that is required to be done.

It is wise to open a PPF account when the person is just 22. The time period of 25 years is ideal. Even Rs.4000 per month is enough to create a good corpus. The biggest advantage is that, unlike an RD, the amount can be varied. During a difficult year, the amount can be very less, and even Rs.1000 is fine enough to keep the account live. One more interesting feature is that two PPF accounts can be opened in the name of the wife and the husband. Opening of accounts in the name of minors is also allowed.

The cash balance at the end of the seventh year, with interest, can be withdrawn up to 25% of the corpus. However, one should never withdraw cash at all. Taking a personal loan has now become so easy. Also, accumulating small quantities of gold and keeping that in a locker will help a great deal. One can easily avail of a jewel loan to be safe and take care of all needs of urgent cash. The Senior Citizen fixed Deposit Scheme is also okay, but the amount that comes to the depositor is inadequate in times of high inflation, now. There are corporates that have a very good rating and the FDs of those companies give as much as 9 percent. Hence, it is wise, therefore, to have PPF for the very long term, and there are some wise senior citizens who continue to have a PPF account even after retirement.

Recurring Deposit Scheme details

This is ideal for those who want to save small amounts. According to the rules, one can save even Rs.10 per month. The biggest advantage is that the RD scheme is only for five years. However, due to inflation, most post office officials insist that the RD should be for a minimum amount of Rs.100/-. It is also quite common for rural area depositors to open RD accounts where Rs.50 is the monthly contribution. The amount on maturity is not taxed. The amount should be accounted for in the returns and one cannot escape from the law. However, if one is within the income tax exemption limits (most middle-class persons are well below the Rs.50,000 per month income levels, even today), there is no problem.

The security of Post office deposits

The biggest advantage of PPF accounts or the RD accounts of the post offices is that there is no need to panic as may be the case of private sector banks or cooperative banks. The post office deposits are all totally safe and guaranteed by the Government of India. Post offices have started to modernize their operations and in the coming years, they will offer services similar to banks. The Postal Bank may come into the operation quite soon and the customers can expect better services. The Post office deposits are not taken to fund any corporate. They are invested only in Government securities. Hence, the safety is one hundred percent.


It is always safe to split one's life savings and also continuously save through investment when a person is very young. This will enable him or her to stay safe when the going is not good. The PPF is the best scheme that offers the best security, as it is a fifteenyear scheme that can be extended in a block of five years. Every middle class Indian should save money through the PPF and the recurring deposit schemes of the Post Offices.


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