of late,PPF has been the most popular search term to land to this site . This is quite understandable considering this is the time when everyone scouts around for tax saving investments. Although the interest from PPF is 8% , the interest earned and paid from this account is also tax free. This makes PPF more attractive. Till the EEE policy on PPF remains, PPF would continue to draw money. (EEE- Exempt on investing, accrual and payout of interest).
With the stock markets lying low, tax saving MFs have gone a bit out of fashion.
POMIS ( Post office monthly income scheme) has also been included as an investment option. Lock in is 6 years and a effective yield of 8.9%. But interest earned and bonus (5%) given at the end of the term is taxable in the hands of investor.
PPF inspite of having a longer 15 year lock in term remains attractive beacuse of the tax free interest when compared to POMIS. So an investment decision for tax exemption in these schemes would also depend on the income tax bracket that the investor.
All said and done, If you are ready to lockin money for > 5 years anyway, my vote goes to SIP (Systematic investment plan) in ELSS ( Equity linked savings schemes in Mutual Fund)schemes as you would get a much higher return ( again tax free) as equities are supposed to outperform other asset classes in a longer investment horizon.


Yzinvest said...

I think this topic need a latest view..with deposit short & long deposit rates going below 8% in all banks PPF not only turn attractive just for tax savings but also for longer term deposits as atleast for next 4-5 years. The bank rates will keep a downward outlook even if the inflation moves up. The TDS free interest remains one big go for PPF accounts. so GO FOR PPF NOW..

Anonymous said...

I agree with the earlier post. Also would like to add that SIP in Mutual Funds is not grantees by the government. In light of recent market fluctuation PPF seems like a safer retirement option.

Sanjay said...

Hi, I invite you to my review of Draft new Tax Code on my blog.

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