PPF account: Why you should not invest in public provident fund? Top 5 reasons
Public Provident Fund, commonly known as PPF account, is a popular investment option in India. It is a long-term scheme that is backed by the government and offers guaranteed returns. However, PPF may not be the best option for everyone. In this article, we will discuss the top 5 reasons why you should not invest in PPF account.
Reason 1: Low Returns
The primary reason why you should not invest in PPF account is the low rate of return. Currently, the interest rate is 7.1% per annum, which is significantly lower than other investment options. For instance, if you compare it with equity mutual funds, which offer an average return of 10-12% per annum over the long term, PPF does not even come close.
Reason 2: Long Lock-in Period
PPF account has a lock-in period of 15 years, which means you cannot withdraw your investment before that. While this may be beneficial for someone with a long-term financial goal, it may not be suitable for someone who needs liquidity in the short term. In case of an emergency, you may not be able to access your funds, which can be a major drawback.
Reason 3: Inflationary Pressure
Inflation is a significant factor to consider while investing, and PPF account may not be the best option to beat inflation. The interest rate of 7.1% per annum may not be enough to protect your investment against inflation, which is currently at 4-5%. This means your real return will be much lower, and your investment may not grow as expected.
Reason 4: Taxation
While PPF account is tax-free in terms of returns, the investment does not offer any tax benefit on the investment amount. This means the amount you invest will not be eligible for deduction under Section 80C. Moreover, the interest earned on the investment is also taxable if it exceeds Rs. 1.5 Lakhs per annum. This could reduce the effective return on your investment.
Reason 5: Limited Investment Options
PPF account only offers a limited investment option, which means you cannot diversify your portfolio. If you are looking for higher returns, you may need to consider other investment options like equity mutual funds or stocks. Investing only in PPF may not be sufficient to achieve your long-term financial goals.
Conclusion:
While PPF account is a government-backed scheme that offers guaranteed returns, it may not be the best investment option for everyone. The low rate of return, long lock-in period, inflationary pressure, taxation, and limited investment options are some of the drawbacks of PPF account that investors need to consider before investing. However, if you have a long-term financial goal and are willing to take low risk, PPF account can still be a suitable investment option.
