Disadvantages of PPF (Public Provident Fund) Account Investment

Do you know what are the disadvantages of PPF account, check the keen observation found on Public Provident Fund account towards, withdrawal rules, locking period and maturity benefits…

PPF is the most trusted and widely used saving instrument used by citizens of India, however, the most trusted and widely used instrument for saving also has its onset of disadvantages, so one should be aware of the disadvantages of the PPF instrument while investing into the instrument, Let us have a look at some of the disadvantages of PPF account

Lowest interest rate

  1. The Interest rate of the PPF account is depended on the savings instrument and is dependent in the market rates, and the rate of interest has been variable being linked to the market rate.
  2. Initially the interest rate offered by PPF was 12%, however it has reduced to 8% now which is even closer to the Fixed Deposit Rate provided by the banks, and the interest rate is further going down and is expected to remain at 8% or further go down as government has invested into small saving instruments which is not expected to improve in near future.

PPF Withdrawal Options

  1. PPF has a lot of drawbacks with respect to the withdrawal of the money, and the account has lock in period of 15 years which is very huge, but although there are options for partial withdrawal and loan facility on the PPF account.
  2. Loan facility is available in the 3rd and 6th financial year but the amount for which loan is provided is 25% of the amount accumulated at the end of the 2nd financial year which is very low, and PPF subscriber also needs to apply for the loan in the 2nd year while the loan is provided in the 3rd year.
  3. There is a capping for the amount that one can withdraw in the 7th year of the account
  4. One can withdraw only 50% of the amount that is there at the end of the 4th year or the 50% account balance at the end of the previous year
  5. The minimum of the two amounts can be withdrawn by the person, and thus, PPF comes with a lot of limitations with respect to the withdrawal.

Cap on the upper investment

  1. There is a cap on the amount that can be invested in the PPF to avail tax benefit as well as get an assured return, and the maximum amount that can be invested if only 1.5 lacs a year which can not fetch you a very high corpus at the end of the maturity period.
  2. Therefore, PPF does not provide a good option for a person who is targeting a big corpus at the end of the maturity period.

Co-ownership of PPF account

  1. Most of the saving instruments such as Fixed Deposit and mutual funds provides a saving option in the name of multiple family members which makes them a family saving option helping in building transparency as well as trust, however, PPF does not provide that option.
  2. One can not have a joint ppf account, but the person and wife can only have their individual PPF accounts.

NRIs cannot open PPF account

  1. PPF facility is also not available for non-resident Indians, which is main disadvantage.
  2. However, if a person had an account when he was a citizen of India and has moved to another country, he can continue to have that account and enjoy the benefits.

Online facilities

  1. Being one of the most trusted sources of investment, it should have the option of online transactions as well as checking the account.
  2. One can open the account for PPF through bank as well as through post office, and most of the banks provide the online facility but not the post offices.

HUFs PPF account

  • Hindu Undivided families which earlier could open the account but now HUFs can not open the PPF account.

The above are the major disadvantages that one can check before investing in PPF account, but the instrument is one the safest among many by allowing tax benefits to the account holder, so please check all and take a wise decision on PPF account.

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