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Investing in PPF for an extended period

Continue with PPF investment, as apart from safety, it offers a reasonable amount of liquidity and decent tax-free returns, suggests Ashutosh Gupta

I'm a retiree and my PPF account will complete the extended period of five years this month. I need to use this amount as supplementary income. Should I extend it by another five years without any contribution and withdraw the required amount once a year or should I close it and invest the amount in debt funds?
- Dilip Patil

No, I suggest you should continue with your PPF investment. In a PPF account, you are allowed to extend it by another five years and you are also allowed to withdraw from your accumulation once a year. More importantly, this investment is currently yielding a return of 7.1 per cent per annum, which is a pretty good return in the context of the way interest rates are in the economy right now. The icing on the cake is all these returns are completely tax-free because earnings from PPF are tax-free.

So, essentially, what you get is a safe investment that also offers a reasonable amount of liquidity. On top of it, it is offering handsome returns which are also tax-free. So, what more would a fixed-income investor hope for in the current context of fixed-income investments? Hence, I would suggest you should forget about any debt funds for the moment and continue with your PPF investment and keep drawing from it annually.

But more broadly, I would say that even for a retiree, some allocation to equity is necessary because sooner or later, you start losing out to inflation. And I hope that you have factored this in some of your other investments in the overall portfolio.

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