Public provident fund (PPF) is a better investment option for the long term. Investment in PPF is not only secure but also has the full benefit of tax exemptions. For investors, this risk is negligible. Since investment in PPF is fully protected by the government, it is risk-free. Currently, the annually compound interest of 6.4% is available on investments in the PPF. That's because it's a long - term investment. A maximum of Rs. 1.5 lakhs in PPF can be invested annually.
Income tax is exempted on the principle amount, which is invested in the PPF account. Amount invested in Public Provident fund lies in the EEE (exempt, exempt, exempt) category, for investments of up to Rs.1,50,000 per year, as per the provisions of Section 80C of the Income Tax Act of 1961. However, a subscriber should always keep in mind that the total principal that can be invested in a financial year cannot exceed Rs. 1.5 Lakhs. The amount received as interest and on maturity is also exempted from income tax. The amount in the PPF account is divided into two parts:
1. The Principal Amount - The amount which is invested by you in your PPF account.
2. The Interest Amount - The amount which you get back in return on your principal amount.