Your Questions About Disadvantage Of Ppf

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Mark asks…

PPF and VPF difference?

Hello All,

Can anyone help me out on the difference between a PPF and a VPF
what are the interest rates if they are different and on the same lines which would be more beneficial?

thanks in advance

Justin answers:

I have no first-hand knowledge of the subject, but I can pass on what I found with a google search:

VPF refers to the voluntary contribution to provident fund account maintained as part of employment in the organised sector. In VPF, funds may remain locked in till retirement while the lock-in period will be 15 years for PPF.

For investors with only a few years to retirement, VPF may seem a more attractive investment option. Also, those looking at PF as their retirement nest-egg may not find the longer lock-in period of VPF a disadvantage. In contrast, withdrawals from PPF may be less cumbersome compared to VPF.

With more and more investors looking to withdraw from PF for innovatively managing their tax investments, many might consider PPF. However, it would be better to leave balances in PF untouched to have some comfort post-retirement. For investors with such an approach, PPF or VPF makes no difference.


You can get some information about rates at

but I am afraid it is probably out of date.

Richard asks…

what is ELSS scheme?is it the right tool to nvest in the mutual fund & tax savingas well?

Justin answers:

Equity linked saving schemes are a kind of mutual funds like diversified equity funds with Tax benefits. It is just like other tax saving instruments like National Savings Certificate and Public Provident Fund. Main advantage with ELSS is lock-in period is only 3 years while for NSC it is 6 years and for PPF it is 15 years. At the same time risk factor is high in ELSS.

As per Income Tax act 80c investment up to Rs 1,00,000 are eligible for deduction from the gross total income hence reducing the total taxable income. For example if your total annual income is Rs 3,00,000 and you invest Rs 1,00,000 in ELSS then your taxable income will become Rs 2,00,000.

Previously there was an upper limit for investing in tax saving instruments like ELSS of 5,00,000. Only individuals with less than 5,00,000 annual income are allowed to invest in tax saving instruments. But last year financial budget removed this restriction and now any individual can invest in ELSS irrespective of their income level.

Advantages of ELSS over NSC and PPF

1. Main advantage of ELSS is its short lock-in period. Maturity period of NSC is 6 years and PPF is 15 years.
2. Since it is an equity linked scheme earning potential is very high.
3. Investor can opt for dividend option and get some gains during the lock-in period
4. Investor can opt for Systematic Investment Plan
5. Some ELSS schemes also offer personal accident death cover insurance
6. Provides 30 to 40% returns compared to 8% in NSC and PPF

Disadvantages of ELSS

1. Risk factor is high compared to NSC and PPF
2. Premature withdrawal is not allowed but it is allowed in other instruments in some specific conditions


Paul asks…

i want to invest in PPF. can anyone give me deatailes about it.?

I want to invest in PPF. Can anyone give me details about it? Can I open PPF in banks or I have to do it in post office only. Can I open my PPF a/c in bank of Maharashtra? Can I change the amount in any year? E.g. suppose I opt for 15 year PPF and want to start PPF by rs.200 p.m. Then can i change it to Rs. 400 p.m. In second year onwards. in short can I change deposit amount at any time?

Justin answers:

You can open an PPF account in any of the SBI branches near your place. All you need to do is carry with you a couple of Photos, Proof of Identity (say Passport, Ration Card,Driving License etc) and some cash (no limit) to deposit into your account. The amount and frequency of payments are up to your choice. You can make an initial deposit of Rs. 500/- and need not deposit even a single rupee for as long as you want. That means, you can change your deposit amount anytime you wish. But, please note that while the deposits into PPF earn you about 8.5% interest & also earn you tax rebate under section 80C, they have a slight disadvantage of a lock-in period of 8 years.

If you are young, then don’t worry .. Go ahead, open your PPF account and try to save a lil bit in this account. It will be a bit of hedging when you put the rest in Mutual Funds , GETFs. I will recommend PPF to ppl who are in their early 40s and without any major commitments for next 6-7 yrs.

George asks…

In terms of economics…?

please define these:

All other things equal
Ceterus paribus
Production Possibilities Frontier
Opportunity Costs in the PPF
Economic Growth in the PPF
Gains from Trade
Absolute Advantage
Comparative Advantage
Circular-Flow Diagrams
The Household
The Firm
Markets for Goods and Services
Factors of Production
Factor Markets

Justin answers:

All other things equal
means other things remaining same. For eg. There shall be no change in assumptions and exceptions else the law will not hold good

Ceteris paribus
With all other factors or things remaining the same.
It is an alternative in writing other things remaining same, unchanged or equal.

In economics, a production possibilities curve (PPC) or “transformation curve” is a graph that shows the different quantities of two goods that an economy could efficiently produce with limited productive resources.

It is the next best alternative forgone
Here’s another example: if a gardener decides to grow carrots, his or her opportunity cost is the alternative crop that might have been grown instead (potatoes, tomatoes, pumpkins, etc.)

Economic Growth in PPF
It refers to the Benefit gained by the effectiv allocation of resources. The causes are;
Improvement in efficiency and productivity by new technology or advancement in techniques
More factor resources are exploited

Gains from Trade
The gains from trade are shown to be realized when the country engages in specialization and trade. Complete specialization is assumed such that the country stops producing the good in which it has a comparative disadvantage.

Absolute Advantage
The ability of a country, individual, company, or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service

Comparative Advantage
A situation in which a country, individual, company or region can produce a good at a lower opportunity cost than that of a competitor

To trade goods or services without the exchange of money.
An example of a barter arrangement would be if someone built a fence for a cattle farmer in exchange for food. Rather than the farmer paying the builder, say, $1,000 for the fence, he would give the builder a similar value in beef.

Circular Flow Diagrams
An exchange is a voluntary agreement between two people in which each gives something to the other and gets in return something that he considers of greater value.
The circular flow diagram divides the economy into two sectors: one concerned with producing goods and services, and the other with consuming them. Resources are converted into goods and services by business, and in this transformed state travel back to consumers. Money flows in the opposite direction. These flows involve two markets in which exchange takes place: the resource or factor market in which business buys resources, and the goods and services market in which business sells goods

The Household
The household is the basic unit of analysis in many microeconomic and government models. The term refers to all individuals who live in the same dwelling. These are studied so as being the consumers

The firm
General term for a business, corporation, partnership, or proprietorship. Legally, a firm is not considered a corporation since it may not be incorporated and since the firm’s principals are not recognized as separate from the identity of the firm itself. This might be true of a law or accounting firm, for instance.
An economic partnership, limited liability partnership, company or corporation.

Markets for goods and services
Market is a place where buyers and sellers come in contact for a specified objective.
Economic system bringing together the forces of supply and demand for a particular good or service. A market consists of customers, suppliers, and channels of distribution, and mechanisms for establishing prices and effecting transactions. For example, the softdrink market comprises the manufacturers, bottlers, distributors, retailers, restaurants, and consumers.

Factors of Production
Also known as the agents of production, which means that factors responsible to carry out the production process.
The four factors are:
This category sometimes extends over all natural resources. It is intended to represent the contribution to production of nonhuman resources as found in their original, unimproved form.
human capital, to carry out the production process manpower is needed i.e labour in economic terms
Frequently capital is treated as finance, associated with the payment of other words finance used to acquire produced equipment
Entrepreneurship: the risk taker and the decision making authority is the entrepreneur, to manage the other factors of production and to arry out the production process smoothly is the responsibility of an entrepreneur.
The distribution to factors is as follow;
Rent – Land
Wages – Labour
Interest – Capital
Profit – Entrepreneur

Factor Markets:
In Factor Market money income are exchanged for the factors of Production, household are the owners and the suppliers of all resources.


I hope this effort of mine will benefit you. 🙂

Michael asks…

can an economy produce outside ppf? how bout consume? explain?

Justin answers:

An economy cannot produce outside its PPF. This is deliberately by definition. Any production at a point outside PPF would only be attained by shifting the PPF out as far as that point, which would put that point within or on the PPF. This could be done by such things as increasing the population, or by advances in technology.

An economy can consume outside the PPF, however. This can be done by engaging in foreign trade. If a country produces and exports goods that it has a comparative advantage in, and imports goods that it has a comparative disadvantage in, the resulting consumption level could be outside that country’s PPF.

James asks…

what is ppf?

Justin answers:

PPF stands for Public Provident Fund. It ia an investment tool where you get tax benefits and 8% annualized return.

– Fixed 8% annual return
– Tax beneifits under 80C

– Cannot take out money till 6 years
– After 6 years you can withdraw 50% of your amount

Joseph asks…

which is best pension plan or ulips?

Justin answers:

Hi Jammy,

First of all, note that pension plans are nothing but a saving plans, which help you to accumulate the money required for retirement.

Current law stipulates that, at maturity of pension plans, minimum 67 % amount should be used to buy annuity / pension from insurance company and maximum 33 % sum can be taken as lump sum for tax free. Please make a note of this, many insurance agents would not explain you this point.

Regarding traditional pension plan or ULIP, both has their advantages and disadvantages. Traditional pension plans offer certain amount as guaranteed along with bonus, which are non guaranteed.

In ULIP, you get flexibility to participate in share markets, bond market as well as to switch betwwen various funds depending upon market outlook, although returns are not guaranteed.

ULIPs fall in to high risk – high return category , while traditional pension plans fall in to low risk category.

I recommend you to first decide on your retirement age and retirement fund you are planning to achieve. Then based on your risk taking capacity and understanding of financial markets, you can either chose traditional pension plan or ULIP or PPF, Mutual Funds, NSC etc.

For more details, once you identify your need, either get in touch with me or contact any financial planner to know which is the best pension plan for you.



John asks…

Unemployment & economy?

Again I admit when it comes to math & econ I’m a moron but I was reading a question where this guy basicly vents about how stupid people are & how everyone tries to pretend they know economics yet then in his opinion say something wrong. He mentioned various factors like imports exports jobs unemployment wages etc etc. He seemed to focus alot on unemployment & how taxes & a minium wage hurt the economy & limit productivity because it costs business more & so they hire less. Now I tend to agree with that but he went on about unemployement & a minimum wage & to me seemed to forget that unemployement at least can be affected at times by seasonal things & not like permantant layoffs. That some people may be unemployed because of choose or because their job like for example contruction in some parts has to shut down at times or takes a hit because of the season am I incorrect in my thinking. I wish I could remember or link the question but I guess it just bugged me that he came off as
seeming to assume that if 7000 people applied for unemployment last week or even last month that all 7000 were laid off as if their jobs were erased instead of taking account that some might have applied because in florida its hurricane season & less construction jobs or something.
Am I correct in my thinking or as way off as I fear?

Justin answers:

You’re not incorrect. The unemployment rate fluctuates on its own, when the minimum wage remains fixed. The two kinds of unemployment that make up the “natural” rate of unemployment are frictional unemployment and structural unemployment. Frictional refers to people who, as individuals, have decided to quit their job, or got fired. They are willing, able, and capable of working, but they are temporarily between jobs. Structural unemployment refers to, like you said, businesses laying off people in response to market changes, such as seasonal demand changes.

However, the unemployment rate is still affected by changes in the minimum wage because the minimum wage affects employee costs for businesses which in turn affects the structure of their market.

An increase in the minimum wage may sound good on the surface, but in reality this will result in increased unemployment, as you mentioned. If a business has a budget for $100 a week on employees at minimum wage, an increase in the minimum wage means that fewer employees can work under that budget. Businesses cannot simply increase their budget for employees when minimum wage goes up, so the economical solution is to reduce labor quantity, i.e. Fire more people, and structural unemployment increases.

Yes, the unemployment rate is never fixed; it is constantly moving. The important thing to measure, however, is the NATURAL rate of unemployment, which is what determines the Production Possibilities Frontier (PPF curve) for a country. Unemployment fluctuates with business cycles independent of changes in frictional or structural unemployment, but these changes are minor and follow a general trend (the natural rate). When the natural rate changes, it can have national repurcussions such as reduced productivity (GDP) or lower standards of living.

Hope that helps you understand a bit.

EDIT: In regards to below posts;
Even though the unemployment increase is in the short-run, it nets long-run negative effects. The time that the country is moved inside its PPF when the minimum wage is increased is a permanent, absolute disadvantage, as the PPF won’t increase beyond its original level in the long-run, and in fact it might stabilize at a lower level than before (as inflation will be very slight, because only those who work at minimum wage have changing incomes). Your post makes it sound like a minimum wage hike has no effect, economically, in the long run, but that is not true.

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