All about Public Provident Fund (PPF) Public Provident Fund (PPF) is the scheme floated under the PPF Act 1968 by central government. PPF is the wonderful product for all who looks for safe, government backed and tax beneficial investment. Below are the features of PPF. Tenure is 15 years. But in reality it is more than 15 years. For example, suppose you opened the account on 5th March 2013 and 15 years will complete on 5th March 2028. But this is not the maturity date of this account. Instead it will be 1st April 2028 (which will be first working day of immediate FY). Current interest rate is 8.80% compounding annually. Minimum investment is Rs.500 and Maximum investment is Rs.1,50,000 (Maximum limit raised to Rs.1,50,000 from Budget 2014). Amount invested more than Rs.1,50,000 will not be eligible for interest and for tax benefit under Sec 80C. Amount invested in PPF will be eligible for deduction under Sec 80C and maturity interest is tax exempt. You are eligible to open only one PPF account in your name. But if found to be you have more than one account then your second account will be deactivated. You will receive only principal of what you paid. You can’t open PPF in joint holding. But you can open PPF account in your spouse or minor child name. You can’t invest more than 12 installments in a year. Means if you planned for contribution of Rs.1,000 then maximum contribution you can make is 12. Not more than that. This account can’t be attached for your debt or liability. So this is totally safest form of investment. You can open PPF account by visiting your nearest Post Office or select nationalized banks, now with ICICI bank too. Read my post “PPF-When to contribute to get higher returns?” to know more about the way of calculation of interest and which way of contribution is best. Read my post “PPF-Loan and Withdrawal” to know more about the eligibility of loan and withdrawal. If you forget to contribute the minimum amount in any year then the account will be deactivated. To activate you need to pay Rs.50 as penalty for each inactive year also you need to pay Rs.500 for each inactive year’s contribution. NRIs can’t open account. But they can continue their existing account till it maturity only. No extension is possible for them. In case death of account holder then the balance amount will be paid to his nominee or legal heir even before 15 years too. So nominees or legal heirs are not eligible to continue the deceased account. If balance amount is more than Rs.1,50,000 then deceased nominee or legal heir has to prove the identity to claim the amount. PPF can be transferred from one place to another place or among the PPF service providing institution. But can’t be transferred from one name to another. Once your account completes 15 years then what options do you? a) You can withdraw your whole amount. b) You can extend for a 5 years block as many times as you wish. c) You can continue earning interest without contributing or extending the term. So is it worth to invest for all? No it is not. Because it depends on your goal and risk appetite. Look at the below interest rate trend of PPF. 1st April 1986 to 14th Jan 2000-12% 15th Jan 2000 to 28th Feb 2001-11% 1st March 2001 to 28th Feb 2002-9.50% 1st March 2002 to 28th Feb 2003-9% 1st March 2003 to 30th Nov 2011-8% 1st Dec 2011 to 31st March 2012-8.60% 1st April 2012 to till date-8.80% What above table indicates? This shows that even though it is government backed but interest risk is always their. So thinking the same interest will get in future too may harm your financial goal. Eventhough loan and withdrawal is available but conditions attached with them make it less liquidate.
Posted on: Fri, 21 Nov 2014 19:33:29 +0000
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