One of the best tax saving schemes that you can avail of from a bank is the Public Provident Fund or PPF (you can also open a PPF account at a Post Office). At present PPF earns a return of 8 per cent per annum. This is one product that should be part of every investor's portfolio.

Pune-based financial planner Veer Sardesai explains why all investors need to have PPF as part of their portfolio. "Suppose you need to withdraw money from your investment portfolio to meet some requirement. If at that point the stock markets are down, you would suffer a loss if you sold stocks or equity mutual funds. In such circumstances, it is better to withdraw from your PPF account," he says. Like equities, the value of debt funds, especially long-term debt funds, also fluctuates — in response to interest-rate movements. When interest rates move up the net asset values (NAVs) of long-term debt funds decline. Hence you need a product in your portfolio whose value does not fluctuate — one that can provide stability to your portfolio. PPF serves the purpose well.

Features

You may invest as little as Rs 500 per year in your account. The maximum you may invest is Rs 70,000 per annum.

A PPF account has a maximum tenure of 15 years. After 15 years the tenure can be extended in blocks of five years (any number of times).

One inconvenience that PPF investors must put up with is that it allows partial withdrawals only at the end of five financial years (i.e., from the sixth year). To overcome this disadvantage, financial planners suggest that you open a PPF account as soon as you start working and cross this hurdle while you are still unmarried and don't have too many financial burdens. A loan against your PPF deposit is also permitted in the early years (when withdrawal is not allowed). This may be availed in case of dire need.

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