It is customary for people to give sane advice- if you have a kid, the kid should have a PPF account. This advice makes very little sense. First of all most of the people I meet today invest far, far more in a year than the max possible amount of Rs. 70,000 in a PPF account. So for most people I know PPF is insignificant. Of course if you and your spouse want a deduction of Rs. 600,000 from 80 C (new section 16?) PPF may become significant.
Secondly in a growing economy inflation is a real danger – and most people do not appreciate this risk. Why people do not appreciate this risk is of course innumeracy. It takes a complicated mind to understand simple things like compounding (inflation is negative compounding).
Though strictly speaking there is not too much to worry about a soverign default, there is a serious risk that an ambitious finance minister will delay the return of your money. Let us say the then finance minister decides to pay you in 10 instalments – yes alongwith interest, but…you know what I mean. Pushing PPF as a great ‘investment’ is a part of the ‘Conspiracy of the Rich’ theory by Robert Kiyosaki. If the government does not keep pushing articles showing how value is created in PPF (using power of compounding and nominal returns) how will they get money @ 8% in such large numbers? So a great con game is created, do not fall for it. Do politicians keep their moneys in PPF? Of course but it is a miniscule part of their wealth. Most of their wealth is kept in cash / kisan vikas patra / …etc. You guessed right, they can keep cash, you see!
So sorry for being a party pooper. If you have a 16 year view (or 20) put your money in a plan with say 85% of the money in equities and 15% in a floater fund. Rebalance every 3-4 years. Surely you will outperform a PPf.
Let me share what I did with my wife’s money. She changed jobs – and her earlier job started paying her a pension. I invested that in Templeton India Pension Plan. Over the last 7-8 years that has become a SIP – and the returns are in the region of 14-20% p.a. Surely if it does under perform over the next few years, it would surely have outperformed ppf’s 8%.
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