Amongst the myriad of investment avenues is the humble Public Provident Fund, of the Government of India. This according to me is a must have debt based Savings avenue, for the following key reasons:

Tax Savings: Well, PPF allows you to save upto a maximum value of 1 Lakh (1,00,000) per annum, and this entire amount falls in the Section 80C tax savings category. Hence, if your earnings fall into the tax bracket, then the total taxable salary is further reduced by the amount that you have invested into your PPF Account. This according to me is a key benefit with PPF.

Assured Returns: Remember my earlier post on Sovereign guarantees for Government Bonds. PPF in India enjoys the same level of Sovereign Guarantees as the Government Bonds. Hence, unless a Greece style incident happens here, the principal will at least get returned back to you. 

No Tax on the Interest Earned: This according to me is the clincher for this investment class. Well, PPF rules require you to hold onto your account without allowing complete withdrawal for a period of 15 long years. Now, assume that you invest the entire 1 Lakh for every year of these 15 years, and the rate of interest hovers around where it stands today i.e. 8.7%, then you will receive a sum of 31 Lakhs with some change at the end of 15 years. This means that your principal investment over the 15 year period has more than doubled in value. Now imagine, you are a middle class bloke earning 10 Lakhs per annum. This means that this entire 15 odd lakhs of interest that you have earned at the end of the 15 year tenure would be taxable, had it been a different investment avenue other than PPF, that you had chosen. Hence, if a Bank deposit for example gives you 10% in interest, this automatically does not translate into higher returns. The net returns after 15 years may be lower than what you earn through PPF, as you will have to also pay income tax on the interest earned, thus dragging down the effective rate of interest that you actually receive.

Holding Period: Well, how does a 15 year holding period become a benefit? It does, because once you put your money into the Ppf Account, the money is more or less inaccessible to you! This in turn means that for the spend thrifts amongst us, this becomes a compulsory saving which one cannot break and take at ones whim and fancy. Remember, my blog is for you to retire young, or atleast gain financial independence at the earliest. This is only possible with a disciplined approach to savings, which an instrument like PPF enforces.

Interest Rate: There was a time in the 80s when PPF used to pay 12% interest. Well, all I can say about it is, Wow! However, the interest rate on PPF nowadays is variable every year, and is determined by the range in which the Bond market rates hover in a particular year. Although, from a standalone perspective this may not be the best bet as far as beating inflation goes, but then my philosophy is to have a healthy balance between risk and reward as far as your savings goes. From a debt exposure perspective, PPF is a good bet and hence should be part of your portfolio.

Attaching your account: PPF accounts cannot be attached as part of any debt recovery, in case you default on your borrowings. Although, defaulting is never an approach I would recommend, there are times when people face financial problems and PPF is a saving that would remain with you in such a case, even if your house no longer is!

Opening your account is easy now: Well, one of the biggest hurdles with PPF for me has always been opening it in the Post Office or SBI. Both these government organizations have long queues and their service is as if they are doing all of us a favour by holding onto our money. Although SBI has somewhat improved over the years, the Post Office is still that old British era organization, which is modernizing with great difficulty. Well, today this problem could be overcome by opening an account with modern banks like ICICI Bank. They allow you to transfer the yearly amount to the PPF account directly from your savings account as an electronic transaction. So bye bye, long queues and bad service!

Well, now that some of the key features of PPF have been provided by me above I would recommend you to go ahead with opening of a PPF account, and reap the rewards of this risk free investment option.