The key to wealth creation lies in the practice of saving regularly and systematically. The public provident fund (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 a low maintenance cost. Investment Yogi explains seven must-know facts of a PPF account to make it more profitable for you.
It requires just Rs. 100 to start a PPF account: PPF accounts could be opened by individuals, whether salaried or self-employed, with a minimum initial deposit of just Rs.
100. Accounts could be opened at any branch of the State Bank of India
(SBI) or branches of its associated banks. Other nationalised banks
which offer this service are Bank of India, Central Bank of India and
Bank of Baroda. 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 they are the guardian.
PPF accounts have a minimum and maximum deposit limit: A minimum deposit of Rs. 500 must be made during one whole financial year. The maximum that could be deposited is Rs. 1,00,000 in a financial year. Deposits could be in either one go, or in flexible instalments (in multiples of Rs.
10). You could vary the amount and the number of instalments, as per
your convenience, provided you do not exceed 12 instalments 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.
Interest calculation in PPF account: The interest
rate in your PPF account is calculated on the lowest balance between the
fifth and the last day of the month. So to maximise your earnings, try
making deposits between the 1st and the 5th of the month. Interest is
compounded annually and credited on March 31 each year.
Premature withdrawal from PPF: The entire amount in
your account could be withdrawn only on maturity. However, in times of
financial crises partial withdrawals are permitted subject to certain
ceiling limits. You could withdraw once a year, from the 7th year
onwards. Such withdrawals must not exceed 50 per cent of the balance at
the end of the fourth year, or 50 per cent of the balance at the end of
the immediate preceding year, whichever is lower. Premature closure of a
PPF account is permissible only in case of death.
PPF offers multiple tax benefits: Deposits in a PPF
account qualify for a deduction under section 80C. Furthermore, the
entire maturity amount including the interest is non-taxable. Not only
is the interest earned tax free, PPF deposits are exempt from wealth tax
Need a loan? Use your PPF: You could take a loan on
your PPF deposit, subject to certain terms and conditions. Loans could
be taken from the third year onwards till the sixth year. Up to a
maximum of 25 per cent of the balance at the end of the 2nd immediately
preceding year would be allowed as loan. Such withdrawals are to be
repaid within 24 months. Rate of interest charged on the loan would be 2
per cent more than the PPF interest rate prevailing then.
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. Inactive accounts or discontinued accounts are not eligible for loan.
Continuing PPF after the 15-year period: PPF account
holders have an option of extending their accounts after the 15 year
tenure with or without further subscription, for any period in a block
of five years. 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
If you continue the account after 15 years, with continued deposit, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted.
Source : ndtv
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