Disadvantages of PPF Investment: You must have read and heard a lot about the benefits of Public Provident Fund (PPF). But do you know that like every other savings or investment plan, PPF also has some disadvantages that you should know before investing.
Public Provident Fund: Public Provident Fund is a popular savings scheme, which can be used to accumulate a large amount over a long period of time. Many people think that this scheme has only benefits, but do you know that PPF can also prove to be harmful for you.
While investing money in PPF gives you a fixed amount as interest, it also has some disadvantages. If you are preparing to invest money in PPF recently, then you must know about its disadvantages.
What are the disadvantages of PPF
If you are a registered salaried employee in EPF, then you are at a disadvantage in terms of interest rate in PPF. The PPF interest rate at present is 7.1%, which is lower than the EPF interest rate of 8.15% for FY 2022-23. Many salaried employees use PPF to save tax. Instead, they can invest money in provident fund through VPF. On the basis of this, they can get savings benefits and better interest.
If you are not employed then PPF is a better option for you. It remains one of the best tax saving schemes offering you guaranteed returns.
Long lock-in period
PPF account matures in 15 years. This scheme is more suited for individuals who really want to invest for a very long term. In case of sudden need of money, investors may have to look for other options.
Fixed Deposit Limit
You can deposit a maximum of Rs 1.5 lakh in a PPF account. This limit has not been increased by the government for the last several years. This can be a big problem for salaried employees. For those who want to invest a higher amount, VPF is a better option, where up to Rs 2.5 lakh can be deposited from the salary without any additional tax.
Strict withdrawal rules
There are various conditions for premature withdrawal in PPF. For example, you can withdraw only once during a financial year and that too after five years excluding the year of account opening. Think of it as if you open a PPF account in FY 2023-24, you can make the first withdrawal only during FY 2029-30.
Premature shutdown not allowed
If you want to stop investing in PPF account, you cannot close it prematurely. As per PPF rules, premature closure is allowed only after five years from the end of the year of account opening and that too subject to the following conditions-
- Life threatening illness of the account holder, spouse or dependent children.
- Higher education of account holder or dependent children.
- Change in residential status of the account holder (such as foreign citizenship).
In case of premature closure, 1% interest will be deducted from the date of account opening till the date of closure. However, PPF account holders, who do not wish to continue investing in the scheme, can continue it by depositing Rs 500 every financial year instead of applying for premature closure.
