Most of us would have already made our decisions as to where we will make our investments or would at least have had the chance of looking at different investment instruments.
At one point in some time or the other we would have come across ‘Public Provident Fund’ as an effective investing instrument. But how much do we know about Public Provident Fund or, PPF?
What is the Public Provident Fund ( PPF ) ?
The key to wealth creation lies in the practice of saving regularly and systematically. The Public Provident Fund (or the PPF) is one such long-term investment option that would suit investors of all types. Scoring high on safety, by virtue of it being government backed, this wonderful option comes with tax benefits, loan options and at a low maintenance cost.
The PPF is a long-term, government backed small savings-cum-tax-saving scheme of the Central Government started with the objective of providing old age income security to the workers in the unorganized sector and self employed individuals.
It also serves as a retirement-planning tool for many of those who do not have any structured pension plan covering them
Brief Highlights !
Non-resident Indians (NRIs) are not eligible to open an account under the Public Provident Fund Scheme. If a resident who subsequently becomes NRI during the currency of maturity period prescribed under Public Provident Fund Scheme, may continue to subscribe to the fund till its maturity on a non-repatriation basis.
Investments in a PPF account can be made in multiples of Rs 5, either lumpsum, or in installments (not exceeding 12 in a year and more than one deposit can be made in a month). The credit to the PPF account is made on the date of presentation of the cheque and not on the date of its clearance. This allows flexibility in savings.
The tenure of the PPF account is 15 years, which can be further extended in blocks of 5 years each for any number of blocks. The extension can be with or without contribution. An account holder, continuing with fresh subscription, can withdraw up to 60% of the balance to his credit at the commencement of each extended period in one or more installments but only once in a year.
Every subscription shall be made in cash or through a crossed cheque or draft or postal order, in favor of the accounts office, at the place at which that office is situated. In case of any cheque, draft or postal order should be drawn at a bank or post office at that place.
Nomination facility is available. In the case of joint nominees, it is possible to allocate the percentage of benefits to each nominee.
Quite like NSC, the Public Provident Fund is also monitored and backed up by the government of India
What is the duration of investment ?
People who are interested in liquidity or small-term gains would not be very keen about PPF because the duration for the investment is 15 years. However, the effective period works out to 16 years i.e., the year of opening the account and adding 15 years to it. The contribution made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate.
The account holder has an option to extend the PPF account for any period in a block of 5 years after the minimum duration elapses. The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.
Who can open a PPF account and where ?
A PPF account can be opened by an individual (salaried or non-salaried) or self employed,
An individual can open only one PPF account to which he contributes.
A PPF account can also be opened in the name of your spouse or children.
It can be opened with a minimum deposit of Rs. 100 at any branch of the State Bank of India (SBI) or branches of it’s associated banks like the State Bank of Mysore or Hyderabad. The account can also be opened at the branches of a few selected outlets of nationalized banks, like the Bank of India, Central Bank of India and Bank of Baroda, and at any head post office.
The general post office too allows opening of a PPF account. Individuals may also open a PPF account on behalf of a minor child of whom he is the guardian.
What is the minimum and maximum amount of deposit ?
Can I execute a Premature withdrawal from PPF ?
The entire amount in your account could be withdrawn only on maturity. However, in times of financial crisis partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once in a year, from the 7th year onwards.
Such withdrawals, must not exceed, 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is lower.
Pre-mature closure of a PPF account is permissible only in case of death. Debts can also be obtained from 3rd year. This 15 year plan can also be extended as a multiple of 5 years.
What are the tax benefits from PPF?
At one point in some time or the other we would have come across ‘Public Provident Fund’ as an effective investing instrument. But how much do we know about Public Provident Fund or, PPF?
What is the Public Provident Fund ( PPF ) ?
The key to wealth creation lies in the practice of saving regularly and systematically. The Public Provident Fund (or the PPF) is one such long-term investment option that would suit investors of all types. Scoring high on safety, by virtue of it being government backed, this wonderful option comes with tax benefits, loan options and at a low maintenance cost.
The PPF is a long-term, government backed small savings-cum-tax-saving scheme of the Central Government started with the objective of providing old age income security to the workers in the unorganized sector and self employed individuals.
It also serves as a retirement-planning tool for many of those who do not have any structured pension plan covering them
Brief Highlights !
Non-resident Indians (NRIs) are not eligible to open an account under the Public Provident Fund Scheme. If a resident who subsequently becomes NRI during the currency of maturity period prescribed under Public Provident Fund Scheme, may continue to subscribe to the fund till its maturity on a non-repatriation basis.
Investments in a PPF account can be made in multiples of Rs 5, either lumpsum, or in installments (not exceeding 12 in a year and more than one deposit can be made in a month). The credit to the PPF account is made on the date of presentation of the cheque and not on the date of its clearance. This allows flexibility in savings.
The tenure of the PPF account is 15 years, which can be further extended in blocks of 5 years each for any number of blocks. The extension can be with or without contribution. An account holder, continuing with fresh subscription, can withdraw up to 60% of the balance to his credit at the commencement of each extended period in one or more installments but only once in a year.
Every subscription shall be made in cash or through a crossed cheque or draft or postal order, in favor of the accounts office, at the place at which that office is situated. In case of any cheque, draft or postal order should be drawn at a bank or post office at that place.
Nomination facility is available. In the case of joint nominees, it is possible to allocate the percentage of benefits to each nominee.
Quite like NSC, the Public Provident Fund is also monitored and backed up by the government of India
What is the duration of investment ?
People who are interested in liquidity or small-term gains would not be very keen about PPF because the duration for the investment is 15 years. However, the effective period works out to 16 years i.e., the year of opening the account and adding 15 years to it. The contribution made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate.
The account holder has an option to extend the PPF account for any period in a block of 5 years after the minimum duration elapses. The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.
Who can open a PPF account and where ?
A PPF account can be opened by an individual (salaried or non-salaried) or self employed,
An individual can open only one PPF account to which he contributes.
A PPF account can also be opened in the name of your spouse or children.
It can be opened with a minimum deposit of Rs. 100 at any branch of the State Bank of India (SBI) or branches of it’s associated banks like the State Bank of Mysore or Hyderabad. The account can also be opened at the branches of a few selected outlets of nationalized banks, like the Bank of India, Central Bank of India and Bank of Baroda, and at any head post office.
The general post office too allows opening of a PPF account. Individuals may also open a PPF account on behalf of a minor child of whom he is the guardian.
What is the minimum and maximum amount of deposit ?
The minimum deposit that you can make into a PPF account in one whole financial year is Rs. 500. The maximum that could be deposited is Rs.1,00,000 w.e.f 01.12.2011
( Earlier Rs. 70, 000 ( limit of the investment in PPF)
Deposits could be in either one go, or in flexible installments ( in multiples of Rs. 10 ). You could vary the amount and the number of installments, as per your convenience, provided you do not exceed 12 installments in one financial year.
Failing to deposit the minimum requirement, would lead to your account being discontinued. Interest would however continue to accrue. You could regularize the account again on paying the prescribed default fee along with subscription arrears.
What is the interest rate offered through PPF ?
The interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the calendar month. So to maximize your earnings, try making deposits between the 1st and the 5th of the month. Interest is compounded annually and credited on 31st of March each year.
Currently, the interest rate offered through PPF is around Interest rate w.e.f 01.04.2012
is 8.8 %. Interest rate w.e.f 01.12.2011 was 8.6 % per annum upto 30.11.2011 was 8%,
which is compounded annually.
So to derive the maximum, the deposits should be made between 1st and 5th day of the month.
Deposits could be in either one go, or in flexible installments ( in multiples of Rs. 10 ). You could vary the amount and the number of installments, as per your convenience, provided you do not exceed 12 installments in one financial year.
Failing to deposit the minimum requirement, would lead to your account being discontinued. Interest would however continue to accrue. You could regularize the account again on paying the prescribed default fee along with subscription arrears.
What is the interest rate offered through PPF ?
The interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the calendar month. So to maximize your earnings, try making deposits between the 1st and the 5th of the month. Interest is compounded annually and credited on 31st of March each year.
Currently, the interest rate offered through PPF is around Interest rate w.e.f 01.04.2012
is 8.8 %. Interest rate w.e.f 01.12.2011 was 8.6 % per annum upto 30.11.2011 was 8%,
which is compounded annually.
So to derive the maximum, the deposits should be made between 1st and 5th day of the month.
Can I execute a Premature withdrawal from PPF ?
The entire amount in your account could be withdrawn only on maturity. However, in times of financial crisis partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once in a year, from the 7th year onwards.
Such withdrawals, must not exceed, 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is lower.
Pre-mature closure of a PPF account is permissible only in case of death. Debts can also be obtained from 3rd year. This 15 year plan can also be extended as a multiple of 5 years.
What are the tax benefits from PPF?
The amount you deposit in a PPF account qualify for a deduction under section 80 C under the Rs.1,00,000 limit. On maturity, the entire amount including the interest is non-taxable. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too. According to Section 80 C, 88, tax benefits to a maximum of Rs.1,00,000 / - can be availed by investing in
this plan.
Need a Loan ! Shall I Use The PPF ?
Yes. You can take a loan on the PPF deposit, subject to certain terms and conditions such as loan repayable in 36 months. Loans could be taken in or after from the third year onwards till the sixth year. Up to a maximum of 25% of the balance at the end of 2nd immediately preceding financial year would be allowed as loan. Such withdrawals are to be repaid within 24 months.
So, if the account is opened during the financial year 2009-10, the first loan can be taken during financial year 2011-12 ( the financial year is from April 1 to March 31).
The interest charged on the loan is 1 per cent higher for the first 36 months, and thereafter, 6 per cent on the outstanding amount. A second loan can be obtained before the end of the 6th financial year if the first one is fully repaid.
A second loan could be availed as long as you are within the 3rd and the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. You can make withdrawals during any one year from the sixth year.
You are allowed to withdraw 50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.
this plan.
Need a Loan ! Shall I Use The PPF ?
Yes. You can take a loan on the PPF deposit, subject to certain terms and conditions such as loan repayable in 36 months. Loans could be taken in or after from the third year onwards till the sixth year. Up to a maximum of 25% of the balance at the end of 2nd immediately preceding financial year would be allowed as loan. Such withdrawals are to be repaid within 24 months.
So, if the account is opened during the financial year 2009-10, the first loan can be taken during financial year 2011-12 ( the financial year is from April 1 to March 31).
The interest charged on the loan is 1 per cent higher for the first 36 months, and thereafter, 6 per cent on the outstanding amount. A second loan can be obtained before the end of the 6th financial year if the first one is fully repaid.
A second loan could be availed as long as you are within the 3rd and the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. You can make withdrawals during any one year from the sixth year.
You are allowed to withdraw 50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.
For e.g., if the account was opened in 2000-01, and the first withdrawal was made during 2006-07, the amount you can withdraw is limited to 50% of the balance as on March 31, 2003, or March 31, 2006, whichever is lower.
Inactive accounts or discontinued accounts are not eligible for loan.
Benefits in Continuing PPF after the 15 year period !
PPF account holders have an option of extending their accounts after the15 year tenure with or without further subscription, withdrawal up to 60 percent of the balance at the beginning of each extended period ( block of five years) is permitted.
The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year.
Inactive accounts or discontinued accounts are not eligible for loan.
Benefits in Continuing PPF after the 15 year period !
PPF account holders have an option of extending their accounts after the15 year tenure with or without further subscription, withdrawal up to 60 percent of the balance at the beginning of each extended period ( block of five years) is permitted.
The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year.
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