Public Provident fund

Public Provident Fund popularly known as PPF, is the scheme introduced by central bank in the year 1968. The scheme enables the people to invest in the fund and obtain tax benefits. At the moment it is EEE (Exempt Exempt Exempt - the money you invest, the interest earned, and the final withdrawable amount are all tax exempt). The main features of the fund are as follows.

1. Any individual and individual on behalf of minors are eligible to open the account.
2. The minimum investment is Rs. 500 and you can invest upto a maximum amount of Rs. 70000.
3. Duration of the account will be 15 years.
4. Only one account can be opened in the name of a person
5. 12 deposits can be made in a year.
6. Loans can be availed from the 3rd year and the amount is limited to 25% of at the end of two years preceding.
   
7. Interest is charged at the rate of 1% if prepaid within 36 months and at 6% on the outstanding loan after 36 months.
8. Withdrawal is permissible from seventh financial year from the year of opening, limited to one in a financial year.
9. Amount of withdrawal is limited to 50 % of balance at the end of the fourth preceding year less amount of outstanding loan or 50% of balance at the end of immediate preceding year of withdrawal less amount of outstanding loan, if any whichever is less.
10. A subscriber can close the account in the 16^th financial year. The account can also be continued with or without subscription, for further blocks of 5 years.
11. Deposits are qualified for Income Tax rebate under section 88 of Income Tax Act.
12. Deposits completely exempted from wealth tax. Interest is completely tax free under section 80 of IncomeTax Act.
13. Interest rate is 8% tax-free compounded annually.
    

Let's say you put in Rs 60,000 in the first year. You will earn Rs 4,800 as interest rate. The next year, your interest rate will be computed on Rs 64,800 (Rs 60,000 + Rs 4,800) as well as whatever fresh amounts you deposit.

The interest rate on the PPF has been gradually lowered over the years (much to the dismay of millions of investors).

It was intially 12% per annum. It dropped to 11%, then 9.5% and is now 8%. This rate of interest is fixed (and changed) by the government.

In short, the main advantage of PPF is that you can be assured of money, as it is a government-backed scheme and it has an attractive interest rate, and also it also has tax benefit. To say the disadvantages, the interest rates keeps on changing with the change in the economy.