Public Provident Fund (PPF)
Public Provident Fund (PPF) scheme was introduced in 1968 by the Central Government of India and is one of the tax saving small saving scheme. PPF provides guaranteed returns along with Tax Relief on the Investment. Considered as an ideal investment scheme for risk averse investors as it offers decent returns when compared to other fixed return instruments. It is risk free investment plan and does not get impacted due to market fluctuations as observed in Equity Linked Schemes (Stock Market).
It is viable saving cum investment option for the salaried as well as self employed Individuals. The PPF fund is managed by the Central Government and interest on the investment is now being declared on quarterly basis prior to the start of the quarter (Implemented from the April, FY ’16-’17). One may open a PPF account in a post office or even through any of the Nationalized Bank and investment can be made through NEFT too. The investment has a minimum lock in period of 15 years and could be continued for even longer period as per individual’s choice.
Any Resident Individual of India is eligible to subscribe for Public Provident Fund account.
Only one account can be held by an Individual, unless an account is opened on behalf of a minor.
Non-Resident Individuals are not allowed to subscribe for the account.
OPENING AN ACCOUNT
Account may be opened in any of the designated Post Offices and Branches of Nationalized Bank. Account may be opened with a minimum contribution of Rs 100/- and submission of following documents:-
Duly Filled in Subscription Form (Account Opening Form)
Passport size Photograph
INVESTMENT AND RETURN
An Individual can make start a PPF account with a minimum annual investment of Rs 500/- up to the maximum amount of Rs 1,50,000/-. Investments may be made on Monthly, Quarterly and Semi Annually or Annually basis but no more than 12 transaction is permissible in a Financial Year. Tax Deduction under Section 80C is also available on the Investment. The investment earns an interest every year as per the decision of PF Regulatory Board which is currently 7.6% (for the quarter January-March,2018) and depending on the market and other parameters will be revised on q-o-q basis. In the 1986-2000 era the return was as high as 12%.
MODE OF INVESTMENT
Subscribers may invest in PPF through Cash or Cheque Deposits. Payment can also be made online towards your PPF account through Fund Transfer.
LOAN AND WITHDRAWAL FACILITY
Loan facility is also available to the subscribers but only from the 3rd Financial year (from the opening of account) and till the 6th year and interest levied is 2% higher than the prevailing return rate (interest on deposit in PPF). Loan up to 25% of the year ending balance of the preceding year can be availed as the loan. The loan has to be repaid within 36 months from the date of issue. Loan can be availed only once in a Financial Year. Second loan, can only be taken after settlement of the 1stloan.
Withdrawal Facility is available from the 7th Financial Year not exceeding 50% of the amount standing as credit at the end of the fourth year immediately preceding the year of withdrawal or at the end of the preceding year, whichever is lower, less the amount of loan (if any). Only one withdrawal is allowed in a Financial Year.
In case subscriber chooses to extend subscription beyond Maturity period, partial withdrawals are allowed once in a year with the condition that the amount of withdrawal during a five year block period should not exceed 60% of the balance in the account at the commencement of the block period.
PRE MATURE CLOSURE
Government has also permitted premature closure of PPF account in genuine cases, such as serious health ailment of self or his/her dependents, higher education of children, etc but is applicable only to accounts which have completed 5 years from the date of opening. Even an account of a minor can be closed at behest of the Guardian on health grounds. However, a deduction of 1% as penalty is imposed on interest payable on whole deposit in case of premature withdrawal. Furthermore, Subscriber is required to provide documents supporting reason for pre mature withdrawal. (Interest is declared annually and deduction will made year wise on the interest declared)
On death of the Subscriber irrespective of the subscription tenure the account will cease to exist and proceeds will be paid to the nominee.
The fund remains locked for a period of 15 years and can be withdrawn after the completion of the term. If the investor wishes to he/she can continue with the same. After completion of 15 years, investment could be extended for another block of 5 years and so on. Investor may also keep the accumulated amount without any further investment and earn interest on it after maturity.
What makes it a Good Investment Scheme?
- Tax Deduction up to the maximum limit of Rs 1,50,000/- available on the investment made.
- Rate of Interest is now being declared on quarterly basis which is expected to be higher than the rate of inflation.
- Rate of Return is higher than other Fixed Return schemes.
- Provides ease of investment and is hassle free.
- Individual can start with a very low savings such as Rs 500/- in a year.
- Tax Deduction U/S 80C available on Investment up to Rs 1,50,000/-.
- Maturity Amount is exempt from Tax liability U/S 10 (10D).