By Ravi Ranjan Prasad Apr 07 2013 , Mumbai | Financial Chronicle|
Be sure you make full use of the 8.7% interest rate for FY14
April is the month to allocate major portion of public provident fund (PPF) investment planned for the financial year to get maximum benefit of high interest rate.
Some people keep postponing the PPF investment thinking that they will invest later during the financial year and play with risky assets like equity to make quick gains towards the beginning of the financial year.
This way you may lose on the Rs 1,00,000 limit later as at the closing of the financial year (March 2014), you may not have adequate liquidity to cover the limit and a great opportunity of compounding interest rate will be lost for one more time.
If the money planned for investment in PPF during the financial year is invested at the beginning of April, almost full interest rate of 8.7 per cent fixed for the financial year 2013-14 will accrue in the PPF account. For the next financial year, it will give a big boost to the outstanding principal amount on which the fresh PPF interest rate will be calculated.
For PPF investors, financial year 2012-13 was a good year, as the interest rate was revised upward to 8.8 per cent from previous year’s 8.6 per cent, and also the annual investment limit per individual was raised from Rs 70,000 to Rs 1,00,000.
Since this year the PPF rate has been revised downward, it makes more sense to start early in the year to make up for the 0.10 per cent reduction in the interest rate.
PPF interest rates are announced every year in March by the government for the upcoming financial year. This rates is benchmarked against the 10-year government bond yield.
No tax is payable on interest earned from PPF investment. Also the investment made in PPF account are eligible for deduction under Section 80C of the Income-Tax Act.
For those also eyeing tax relief by investing in PPF under Section 80C, should decide on the investment amount after deducting unavoidable investments, if any, in employee provident fund (EPF), life insurance and other such options. The total tax benefit can not exceed Rs 1,00,000.
Suresh Sadagopan, chief financial planner, Ladder 7 Financial Advisory, said, “PPF continues to be a good vehicle to invest because of attractive returns. People should look at it as a serious vehicle for long-term goals, like retirement, child’s education and marriage.”
The government has created PPF as an option for those who are self employed, while those who are employed have both the options of EPF and PPF to achieve their long-term goal.
PPF account can be opened either at designated banks like State Bank of India, Bank of India, ICICI Bank, or post office in your neighbourhood.
In banks’ PPF account, one can now make online deposits and avoid the hassle of standing in a queue at the bank’s branch. Post offices do not provide online investment facility so far.