Although PPF offered 12 percent interest in April 1999, it began to decline at the turn of the twenty-first century and continued to decline annually until April 2020, when it settled at 7.1 percent, where it remains to this day.
How would you feel about an investment product that used to yield 12% annual interest but now only yields 7.1%? Well, it's not as popular as it once was as an investment vehicle. The public provident fund, or PPF as it is widely called, experienced just this.Bank interest rates and FD (fixed deposit) rates have decreased significantly during the last 20 years due to the shift in the times, and so did the interest on PPF.
For those who are unaware, PPF is a modest savings plan that guarantees investors returns. During a fiscal year, one can invest anywhere from ₹500 to ₹1.5 lakh. Both lump sum and installment deposits are accepted.
The PPF account will be closed if no minimum deposit of Rs. 500 is made within any given fiscal year.
This plan previously resonated with middle-class investors for a number of reasons. First, the system has legitimacy because it is administered by the Indian government. It also includes a 15-year lock-in period, which encourages small investors who are typically hesitant to make riskier investments like stocks to adopt a disciplined approach to investing.
However, starting in the fifth year, partial withdrawals are allowed.
Additionally, as long as taxpayers have chosen to use the previous tax system, PPF investments are free from income tax under section 80C of the income tax code.
A huge drop
Prior to the year 2000, PPF provided an astounding 12% return rate on investments.
However, interest rates began to decline from the start of the twenty-first century. They were reduced by 1% in the first quarter of this century.
In 2001, the next year, PPF began giving its investors 9.5 percent. Later, in 2002 and 2003, it increased to 9% and 8%, respectively.
The PPF account will be closed if no minimum deposit of Rs. 500 is made within any given fiscal year.
This plan previously resonated with middle-class investors for a number of reasons. First, the system has legitimacy because it is administered by the Indian government. It also includes a 15-year lock-in period, which encourages small investors who are typically hesitant to make riskier investments like stocks to adopt a disciplined approach to investing.
However, starting in the fifth year, partial withdrawals are allowed.
Additionally, as long as taxpayers have chosen to use the previous tax system, PPF investments are free from income tax under section 80C of the income tax code.
A huge drop
Prior to the year 2000, PPF provided an astounding 12% return rate on investments.
However, interest rates began to decline from the start of the twenty-first century. They were reduced by 1% in the first quarter of this century.
In 2001, the next year, PPF began giving its investors 9.5 percent. Later, in 2002 and 2003, it increased to 9% and 8%, respectively.
The interest rate dropped to 8.7% in April 2013 and stayed there for the following three years. After that, in April 2016, it fell even lower to 8.1%. This decline persisted until September 2018, when the rates were lowered to 7.6%.
They merely declined further, first to 7.9 percent and then to 7.1 percent, which is their current standing, even if they slightly increased once more to 8% in October 2018.
A new tax system
Another reason why this once-popular plan is losing favor with small investors is because investing in PPF is no longer tax-exempt as of April 1, 2023, when the new tax code became the default regime.
They merely declined further, first to 7.9 percent and then to 7.1 percent, which is their current standing, even if they slightly increased once more to 8% in October 2018.
A new tax system
Another reason why this once-popular plan is losing favor with small investors is because investing in PPF is no longer tax-exempt as of April 1, 2023, when the new tax code became the default regime.
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