Public Provident Fund  

During the process of asset allocation, financial advisors will generally recommend an allocation to Public Provident Funds in the debt portfolios of their clients. Debt allocations are meant to reduce volatility of returns and provide stability to the portfolios. Amongst various instruments available to individual investors, the PPF is a must have for the following benefits.
1. Safety of returns - The PPF is a statutory scheme of the Central Government2. Tax Free returns - 8 % compounded annually is tax-free 3. Scheme qualifies for Section 80 C benefits4. Deposits are exempt from wealth tax. 5.The balance amount in PPF in PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability.6. Easy to operate - the PPF account can be opened in any public sector bank or post office Other features
The minimum deposit is 500/- and maximum is Rs. 70,000/- in a financial year.
PPF can be opened in minors name too
Minimum time period is 15 years which can be extended in blocks of five years with or without contributions
Limitations of the Scheme
1.Limited Liquidity- The PPF does not allow for premature closure or withdrawal of funds. Part withdrawals are allowed after 7th year only. 2. The rate of interest of 8 % is not contractual. The government can change the rate any time even on existing accounts. Of course this is with prospective effect i.e. applicable to the period from which change is made.
One must open PPF accounts in all family members name (including minors) as part of their long-term debt allocations. Over 15 years a sum of Rs. 70000 invested every year grows to Rs.2, 05,270 tax free and safe (subject to the interest rate reminding at 8 %). If invested in a disciplined manner in other family members name as well, the corpus will be sizable for meeting major milestone expenses like child's education, marriage and retirement too. Of course starting early is the key.
Employers Provident Fund
Most salaried individuals would have a part of their salary going into the EPF scheme from their monthly salaries. The employer also invests 12 % of employee's basic salary into the fund. The EPF scheme ensures systematic investments into debt, and has the advantage of being 100 % safe .In these times of job-hopping most individuals simply encash their EPF investments when they move to the new employer. If their EPF contributions are less than 5 years old such withdrawals are subject to tax in the year of withdrawal. To avoid this scenario it is highly recommended that one should simply transfer the EPF to new employer by submitting form 13. This form will be available with the HR department of all companies .Not only will transfer ensure smooth accumulation of funds, but also help avoiding unnecessary tax payments. Remember the EPF is an important component of debt portfolio of salaried individuals and can contribute to a significant corpus at the time of retirement.