Wednesday, 25 January 2012

Everything you wanted to know about PPF (Public Provident Fund).

Let us start off with couple of Good News for PPF Investors. 
  • Increase in Interest Rate from 8% to 8.6%  8.8%
  • The annual ceiling on investment in PPF scheme has been increased from 70K to 1 lakh.
Couple of news that are not so good: 

  • The interest rate 8.8 is applicable only for current financial year.
  • Going forward the interest rates will be changing every year. The interest rates applicable for Govt Securities (G-Sec) will be used as benchmark for PPF interest rates. 
  • Interest on loan against PPF has been increased to 2%. Earlier this was 1%.
  • Govt has abolished the agent’s commission on PPF scheme.
In spite of all the recent changes made to PPF, It would still continue to remain as best debt product. Best investment option for some who wants to build corpus in safe and steady way. Let us see what make PPF so attractive? 
  • Tax free Returns.
  • Amount invested up to 1 lakh qualifies for tax benefits(80C)
  • Investment per year can be as low as 500 and Max of 1 lakh.
  • Long term product of 15 years, Option to extend further.

Let us dive into some details:
  • PPF can be opened in any branch of the State Bank of India or  Head Post Office or any other nationalized banks that have PPF facility
  • Deposit only up to 1 lakh is eligible for Tax benefit.  Deposit in excess to 1 lakh will not fetch any interest nor tax rebate
  • 12.3% would be the effective yield for a person in highest tax bracket
  • If you open two PPF accounts in your name, the second account will not carry any interest.
  • You can deposit money in lump sum or in installments subject to maximum of 12 in financial year.
  • You can take loan up to 25% of your balance amount.  Loan facility is available from 3rd year to 6th Year.
  • Partial Withdrawal provision available from 7th Year Onwards.  Example if your account was opened in 2000-2005 you are eligible for first withdrawal in 2006-2007. Amount you can withdraw is lower of (50% of the balance as on March 31, 2003 or 50% of the balance as on March 31, 2006)
  • Maturity period for PPF is 15 years. After maturity, you have an option to extend it in blocks of 5 years
  • Discontinued PPF account can be regularized by paying per year minimum remittance amount of 500 Rs and penalty of 50 Rs per Financial year. Example To regularize an account that is not operative from 2 years, you would need to pay Penalty of 50 Rs per year and Minimum remittance amount of 500 Rs per year. So paying 1100 Rs(500*2 + 50*2) will regularize your PPF account
  • Discontinued PPF account cannot be closed before maturity. The account will continue to earn interest till maturity.
Case Study: What if Rajesh invests 1 lakh every year for next 20 years in PPF. What would be the maturity amount assuming that the interest rates hover around 8.5 or 8.6% 
Answer: Approximately 58 lakh would be the maturity amount. In addition to this he would have enjoyed the tax rebate under 80C. Isn’t it attractive sum? More over the entire amount is Tax free…
* Click here to know about Tax Saving FD's
Do you think Rajesh should invest 1 lakh every year in PPF? Leave your opinion.



RAVI said...

no ,,,,till that time value of money wall fall greatly ...or life ka kya bharosa yaro kab maut aa je kise pata..kal history me tumhara naam ae ki ek bewkuf pese jama kar ke mar gaya

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