All you need to know about PPF, a tax saving, guaranteed returns product. PPF suits almost everyone and is equally easy to invest and understand. Read on.
We at stepupmoney, constantly strive to give the best and simplified insights into the complex world of personal finance. We understand that for most of us Indian investors, stock markets and gold are attractive, but not all have an in depth understanding or the risk appetite that these asset classes require. For lot of us, tax saving and guaranteed returns on investments does the trick. Keeping your preferences in mind we did a post on Recurring Deposits recently and along the same lines we focus on PPF or Public Provident Fund Account. It is a tax saving and guaranteed returns product and probably a best long term investment suitable for almost all investors.
So what is so special about the PPF account and why so much hype? You already have an EPF account from your employer, do you need a PPF? What is the Tax Benefit of PPF account? All these and many other questions that you may have in mind are answered in this post.
What is PPF?
PPF was introduced in 1968, as a small savings scheme by the Government of India for providing long term investment avenue for self-employed individuals or people from non-traditional working sector. However since then it has been a darling of a lot of investors since it is a long term investment that helps you meet a lot of your long term goals and saves Income Tax too. The other thing is it has Fixed Returns and hence your money is safe and your returns guaranteed.
How does a PPF account work?
Your investment in a PPF account has a lock-in period of 15 years. Due to this, your investments have a good amount of time to grow substantially, and the amount you invest in it saves you tax every year. PPF account pays regular interest on your deposited money and the interest is calculated every month and is compounded. You need to deposit a minimum of Rs. 500 every year to keep your account active. The maximum amount you can deposit in a year is Rs. 1 Lac. There is no compulsion for you to pay a fixed amount every month or every year as long as you deposit the minimum of Rs. 500 anytime within a year. As and when you have cash to deposit you can do so for a maximum of 12 times in a given year. Whenever and whatever you need to deposit is completely up to you.
How many PPF accounts I can have?
An individual can have only one PPF account. However, they can have one more account in the name of a minor for whom they are the guardian. Even if you have an EPF from your employer, you can still have a PPF account.
Where can I open a PPF account?
You can open a PPF account with any of the leading Nationalized Banks like SBI, Bank of India etc who have designated branches that allow a Public Provident Fund Facility. Not all branches of these banks are permitted to open a PPF so you need to check on their websites or your nearest branch. ICICI bank is the only private sector bank so far that provides PPF facility.
You can also open a PPF account with the Post Office of India. PPF is a national scheme and has uniform rules and rate of returns irrespective of where the account is.
Who can open a PPF account? How to open a PPF account?
Any individual who is an Indian Resident can open a PPF account. You need to visit the bank branch where PPF facility is available or Post Office, fill the account opening form, and submit the following:
- 2 passport size photographs.
- Address Proof (copy of any Government utilities bill, passport, Bank statement, or ration card etc)
- Identity Proof (copy of the passport, PAN card, driving license, or voter identity card etc).
Carry original identity proof for verification. Mention a nominee and a witness signature.
Which is the best time to invest in a PPF account?
The interest on PPF is calculated on the lowest balance between the end of 5th day of the month and the last day; hence the best time to invest to earn the maximum from your deposited amount is between 1st and 5th of every month.
Is PPF taxable in anyway?
PPF investment is completely Tax-Free. The amount you invest in PPF in a financial year is exempted under 80C of Income Tax act. The interest earned is Tax Free too and also the amount on maturity. Further, your amount and earnings from PPF are exempt from Wealth Tax also. PPF is the best tax-free long term guaranteed returns product.
When can I withdraw from PPF account? Do I get loan on PPF?
There is a lock-in of 15 years in a PPF account so you cannot withdraw prematurely. From the 7th year however, you are eligible for partial withdrawals once in a year for amount not more than 50% of account balance at the end of the 4th year or the 50% of balance of the preceding year, whichever amount is less.
You can avail loan facility on your PPF account from the 3rd year and till the 6th year for not more than 25% of the balance at the end of the 2nd year. You can avail additional loans only once your previous loan from PPF is paid up. You need to repay within 24 months. Interest charged on loan is 2% more than the PPF interest rate.
What is the interest rate on PPF account?
The current rate of interest on PPF account is 8.7% p.a. The interest is compounded and credited on 31st March each year.
Why is PPF account right for you?
Being a small savings scheme for the masses, PPF account is highly flexible and investor friendly. You can open a PPF account with a minimum deposit of Rs. 100. You can then deposit a minimum of Rs. 500 anytime in a year to a maximum of Rs. 1,00,000. Usually people deposit a certain fixed amount every month from a better investment point of view, but in case you are not too keen on a regular investment, any surplus money you receive from family functions, bonus, etc, you can deposit in the PPF account and earn tax free guaranteed returns. It is not a binding investment like an SIP or Insurance Premium and offers complete flexibility in investment. It also is a safe investment.
Public Provident Fund or PPF is a great long term investment and probably the best Tax Saving investment with guaranteed returns available currently. Its return are better than most ULIPs and Endowment plans and hence it is worthwhile to open and start investing in a PPF account today.