All you wanted to know about PPF (Public Provident Fund) Public Provident Fund or as it is popularly called PPF

is one of the best debt investment instrument available in India. It suits every kind of investor for ones debt portfolio. The Tax free return backed by government guarantee makes it more attractive for investors. And above all the investment in PPF is eligible for tax saving u/s 80C. All these features have made PPF a darling investment option. Through this article I will discuss with you the basic features of this product, latest changes announced and why or why not one should consider investing in THIS.

Basic Features of PPF (Public Provident fund) 1. Tenure: It is a 15 years product with 16 years lock in. The first year of investment is not counted for 15 years maturity. If you have opened the PPF a/c on 15 July2000, then 15 years tenure will start from the end of FY 2000-2001 i.e. 31st march 2001. The maturity date in this case would be 31st march 2016. 2. Deposit Limits : Minimum investment per financial year in PPF is Rs 500/- and w.e.f 1.12.2011 the maximum limit has been raised to Rs 1 lakh which was earlier Rs 70,000/- The deposit can be in one go or in number of flexible instalments not exceeding 12 per financial year. Please note that PPF (Public provident fund) a/c can be opened with initial deposit of Rs 100/only. 3. Interest rates: The interest earned in PPF remains fixed for one year and is no longer guaranteed forever. It is actually benchmarked to the 10-year government bond yield and will be 0.25% higher than the average government bond yield. This rate will be declared every year in March-April. The rate announced for FY 2013-2014 is 8.7%. The Interest is computed for a calendar month on the basis of the lowest balance in an account between the close of the 5th day and the end of the month and the Interest is credited to the account of the account holder at the end of the year. Thus it is advisable to deposit money in this before 5th of any month. 4. Account Holders :

a) Account can be opened in the name of Individual (salaried or self-employed). NO HUF or association of person is allowed to open PPF a/c. b) Account can also be opened in the name of minor through guardian who can be father or mother or a person appointed by court (if guardian is not there). Thus Grandfather or grandmother are not allowed to open a/c in the name of Grand children

Only one account is permissible to one individual. Thus if father has opened an account in the name of child, mother cannot open the PPF a/c in the name of same child. c) No Joint account can be opened.

d) Non Resident Indian (NRI) cannot open a new Public provident fund account in India. Prior to 2003, NRIs were not even allowed to make contributions into existing PPF accounts, that is, accounts opened before they became NRIs. However, in 2003, a notification (MOF (DEA) No GSR 585 (E) dated 25.7.2003) was issued permitting NRIs to continue investing in existing PPF accounts till maturity 5. Premature withdrawal: Many people avoid this investment just because of the lock in period of 15 years. They are not aware of the premature withdrawal facility available in this. IN PPF accounts you are allowed to make partial withdrawals in times of financial crises. You are allowed to withdraw seventh year onwards and that too once a year. Such withdrawal figure must not exceed 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is less. Lets suppose your account was opened on 8th August 1993 i.e. in FY 1993-94. First withdrawal date: Add 6 to the financial year end => 1994 + 6 = 2000. It shows that seventh financial year would be 1999-2000. Amount of first withdrawal: The 4th preceding year will be 2000 4 = 1996 (FY 95-96) and preceding year 2000 1 = 1999 (FY 98-99). Amount withdraw able in the 7th year, FY 19992000 is 50% of the balance to the credit as on March 31, 1996 or March 31, 1999, whichever is lower. 6. Loan on PPF :

Loans could be taken from the third year onwards till the sixth year. Lets suppose you opene d your PPF account in December 2011 (in the FY 2011-12), you can avail a loan only in FY 20132014 (2012+2 = 2014) till FY 2016-2017 (2012+5=2017). You can avail a loan amount of up to a maximum of 25% of the balance in your account at the end of the second year immediately preceding the year in which the loan is applied for. If you apply for a loan in November 2013 (FY 2013-2014), you would get 25% of the amount that existed at the end of March 2012 (2014-2 = 2012). Rate of interest charged for this loan would be 2% higher than the PPF rate. Previously this was 1% only.

7.

Discontinued accounts:

You need to deposit minimum of Rs 500/- per Financial Year, failing which the account will be termed as discontinued account. Interest would however continue to accrue. You could regularize the account again by paying the penalty fee of Rs 50/- for each year of default along with subscription arrears of Rs 500/- per Financial Year. 8. Continue after maturity: After 15 years of continuation i.e. on maturity, PPF accountholder has 2 options, either to take out the maturity amount and close the account or to further extend it for block of 5 years for any number of periods with or without further subscriptions. If extended without contribution, any amount can be withdrawn subject to one withdrawal per year. If extended with contribution, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted 9. Tax benefits: PPF offers multiple tax benefit. It offers Tax saving on deposit u/s 80C up to maximum limit of Rs 1 lakh; also the interest earned in PPF enjoys tax free status. Other Important Features of Public provident fund

The PPF scheme is operated through Post Office and Nationalized banks. PPF account can be opened either in Post Office or in a Bank. These days even Pvt Banks like ICICI bank offers this account. Account is easily transferable between post offices or banks, even between post office and banks. Deposits are exempt from wealth tax. The balance amount in PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability, but it can be attached by the Income Tax and Estate Duty authorities. Nomination facility available.

Should You Invest in PPF? One thing is very clear that with the EEE (Exempt Exempt Exempt) nature of this product, this is a Must have investment account in ones portfolio. Moreover the early you open this account, early you will get over with the lock in period. One should consider the following points before investing into this product.

Taxation: Dont look at tax free interest only but also the income tax bracket you fall into. Last year when PPF rate was 8.6% and last to last year when it was 8% ,Fixed deposits offering rates

@9.5% was more attractive to invest for someone who falls in the lowest tax bracket i.e. earns gross total income of less than Rs 5,00,000/-. After tax returns of bank fixed deposits were more than PPF. It is only this year with the rate of 8.8%; PPF looks good to invest for everyone. For other high income bracket people, this investment is undoubtedly all time very good option. Asset Allocation: You have to consider the overall asset allocation, which has been designed for the achieving of your long and short term goals. If you are already putting enough money in debt through compulsory EPF/GPF deductions, then you may not require PPF investment, but as I said earlier that this product should not be ignored also. Interest rates movement: If one is aware of how debt product actually performs with the interest rate cycle, then he/she can take advantage of high rate by investing the portion in debt mutual funds, to take the benefit of fall of interest rates in future.(Read : How to select debt funds)

With the linkage of PPF rates with G sec yields, this is very much clear that we may find these rates go down some year. One can recall those years when the G sec rates were in the range of 5.5%-6%. If that scenario has to repeat in the next few years (which is not sure) than Investment in Debt mutual funds would be a wiser choice at present. (Read : bank deposits vs debt mutual funds) PPF or Public provident fund is a very long term and good instrument to invest in. One can map this with any of long term goals. Earlier you can easily calculate the future value of investment in this product, since the interest rates were fixed. But these days, when interest rates are linked to the Government securities rates, so investor has also to be vigilant enough for his investments so that this volatility should not affect his achievement of goals.

PPF Investing
Q-1: How much interest do I earn by investing in PPF scheme? Ans: Since the year 2003-04, the rate of interest on PPF saving scheme is 8% p.a. (8.6% w.e.f. 1st Dec 2011)compounded annually. Q-2: How does PPF stand vis--vis NSC? Ans: Investing in PPF certainly scores over investing in NSC. For more details see: Which is better between the PPF and the NSC? Q-3: How can I make the most of my PPF account? What are the considerations to be kept in mind while investing in PPF? Ans: There are certain tips and tricks you can use to make the most of your PPF account such as opening PPF account at the earliest, investing on regular basis rather than waiting till the end of the year, and investing before 5th of every month. For more of such tips see: 10 Practical Tips for investing in PPF. Q-4: How do I calculate the interest on PPF? Ans: Use PPF interest Calculator to calculate your PPF interest and maturity value. Q-5: Why should I invest in PPF? Ans: You must invest in a PPF because it is the best debt option after PF: 1. 8% p.a.(8.6% w.e.f 1st Dec 2011) tax-free returns in addition to section 80C deduction on deposits. 2. Option to invest regularly for long term and can be continued indefinitely even after maturity 3. Highest safety as it is a government- backed saving scheme. 4. Cant be attached by any court. 5. Flexibility to invest varying amounts. Youre allowed to deposit in lump sum or in installments. Further, you can vary amount of installments as per your convenience and it is not necessary to deposit every month.

Making Contributions in PPF Account

Q-6: What is the maximum ceiling on deposit in PPF? Ans: As per Section 80C of Income Tax --> Rs 1 lakh As per PPF Rules --> Rs 70,000 (Rs 1 lakh w.e.f. Dec11)

Q-7: How many numbers of times can I make deposits in PPF account during a year? Ans: You can deposit money in your PPF account either in lump sum or in installments which need not be of same amount. However, total number of deposits during a financial year cant exceed twelve. Q-8: Am I required to deposit money in my PPF account every year? What if I dont? Ans: Yes, a minimum deposit of Rs 500 is required every year. If you dont, then your account will become inoperative.

PPF: Tax Benefits

Q-9: What are the tax benefits available on PPF scheme? Ans: There are two benefits: first when you deposit money in your PPF account, you get entitled for tax deduction u/s 80C and as a result your taxable income stands reduced to that extent. The second tax benefit is that the interest earned on your PPF deposits is completely exempt from tax. Q-10: Is it possible to avail Rs 1 lakh deduction under section 80C though were allowed to deposit maximum of Rs 70,000 (Rs 1 lakh w.e.f. Dec 2011)under PPF rules? Ans: Actually under the IT Act, there is no limit and even under PPF rules Rs 70,000 (Rs 1 lakh w.e.f. Dec 2011)limit is meant for self a/c and minor a/c. It doesnt include the contribution to the a/c of spouse and major children. In other words, as per PPF rules, the total deposit in your own account and in the account of your minor child cant exceed Rs 70,000 (Rs 1 lakh w.e.f. Dec 2011)in a FY. But PPF rules doesnt bar you from making additional deposit beyond the limit of Rs 70,000 (Rs 1 lakh w.e.f. Dec 2011)in the account of your spouse or your major children and accordingly you can claim Rs 1 lakh tax deduction u/s 80C of IT Act. Q-11: Who can claim section 80C benefit: the person in whose name the PPF a/c stands or the person who deposits money in the PPF account? Ans: The person who makes the contribution to PPF is entitled for tax benefit. For example, if you invest your money in the PPF account of your spouse, youll be entitled to claim section 80C deduction instead of your spouse. Q-12: Can I contribute to the PPF account of my parents and claim section 80C tax benefit? Ans: No, youre not allowed to claim tax benefits on the contribution made by you in the PPF account of your mother or father.

Q-13: Is it possible to avail section 80C benefit without making deposits in the PPF account? Ans: Yes, but only from 7th financial year onwards. The trick is to make partial withdrawals (as mentioned below) and redeposit it in your PPF account.

PPF: Account Opening

Q-14: Is PAN compulsory to open a PPF account? Ans: No, PAN is not compulsory. Q-15: Can I open a joint PPF account? Ans: No, joint PPF accounts are not allowed. Q-16: Can I open a PPF account in the name of a minor? Ans: Yes, if youre a guardian.

PPF: Loans / Withdrawals before Maturity

Q-17: When can I start making partial withdrawals / loans from PPF? Ans: Loan facility is available from 3rd year to 6th year. From 7th year onwards, youre allowed to make partial withdrawals. Also note that once you become eligible for withdrawals, no loans are allowed. The basic difference between the two is that unlike withdrawal facility, loan carries interest and is to be repaid. Q-18: What is the process for applying for loans and partial withdrawals? Ans: To avail loans youve to fill Form D and for making partial withdrawal from your PPF account, youve required to fill up Form C.Further the application should be accompanied with the passbook. Q-19: How much can I borrow from PPF? Ans: The amount of loan cant exceed 25% of the balance at the end of 2nd immediately preceding year. For example, if you apply for loan in 4th financial year, then the maximum amount of loan you can avail is restricted to 25% of the balance at the end of 2nd FY. Q-20: How much can I withdraw borrow from PPF? Ans: Youre allowed to make one withdrawal each year after completion of six financial years (i.e., from the beginning of 7th FY). The amount of withdrawal cant exceed a.) 50% of the balance at the end of the 4th immediately preceding year, or

b.) 50% of the balance at the end of the immediately preceding year which ever is lower. Further, the amount of withdrawal gets reduced by the outstanding loan amount, if any. For example, if the account was opened in 2004-2005 the first withdrawal can be made during 2010-2011. The amount of withdrawal will be the lower of: i. 50% of the balance as on March 31, 2007, or ii. 50% of the balance as on March 31, 2010 Q-21: Can I close the account before maturity? Ans: No, the premature closure of PPF account is allowed only in case of death. However there is an exception. Premature closure can be considered after the expiry of 5 years in case of genuine hardship .

PPF: Account Operation

Q-22: How can I change the nomination in my PPF Account? Ans: By filling up Form F, you can apply for change of nomination in your PPF account. Q-23: Can PPF account be transferred from one post-office / bank to another? Ans: Yes, it is possible to transfer from one post office to another or one bank branch to another bank branch. Transfer from Post office to bank & vice versa is also possible. Finally inter bank transfer is also possible. Q-24: My PPF account is currently inoperative? How do I reactivate it? Ans: To revive and regularize your PPF account, you'll have to deposit Rs 500 for every year of non-payment along with a penalty of Rs 50 for each year of default. Q-25: What if I dont reactivate it? Ans:The balance in your PPF account will continue to earn interest and repayment of the subscription with interest will be made to you on maturity. In other words, the restrictions are as follows: 1. You can neither apply for a loan nor for a premature withdrawal. 2. Before making any further investment, youll have to reactivate it. Q-26: Im the nominee of the PPF account of my spouse who expired recently? Can I continue to operate the account? Ans: No, nominees are not allowed to operate the account of deceased subscriber. The account needs to be closed by submitting Form G together with proof of death.

However, as the account is closed on demand by the nominee, it continues to earn interest till the date of closure. Q-27: What is the procedure to close the account if the deceased account holder forgot to make a nomination? Ans: If balance is more than Rs 1 lakh, succession certificate is required. But if the balance is up to Rs 1 lakh, it can be claimed by legal heirs by filing Form G along with i) a letter of indemnity, ii) an affidavit, iii) a letter of disclaimer on affidavit, iv) a death certificate. Q-28: What if the minor attains majority before the maturity of PPF account? Ans: Ex-minor will have to take over the operation of the PPF account by registering his signature (attested by the guardian).

PPF: Post Maturity Operation

Q-29: Can I continue to remain invested after the maturity period? Ans: Yes, you can continue to remain invested after the initial maturity period of 16years. There are two options available: -With further subscriptions: This option can be exercised only in writing and in a block of 5 years. -Without further subscriptions: No conditions attached and no intimation required. Q-30: How many maximum numbers of extensions are possible after the initial maturity of 16 years? A: There is no limit imposed on the number of extensions. The only restriction is that every extension is for a block of 5 years in case of continuation with further subscriptions. Q-31: Can I further invest during the extension period of 5 years? Ans: Yes, provided you have exercised the option in writing by submitting Form H. Q-32: What is the time limit of submission of Form H? Ans: Form H is required to be submitted within a period of one year from the date of maturity. Q-33: Can I make withdrawals during the period of extension? Ans: In case youve exercised the option to continue the account with further subscriptions, youre allowed to make one withdrawal per year but the total amount of withdrawal during the 5 year period cant exceed 60% of the balance in your PPF account at the beginning of each extended period.

On the other hand, if you continue the account without subscription, then theres no maximum limit imposed on the amount of withdrawal. You can withdraw even the entire amount. The only restriction is that only one withdrawal is allowed in a financial year.

PPF: NRIs
Q-34: Im a NRI. Can I open a PPF account? Ans: No, a non-resident Indian (NRI) is not allowed to open a PPF account. Q-35: I opened a PPF account while I was a resident India. Subsequently, I attained the status of an NRI while the scheme is yet to mature. Now Can I operate it and make further investments? Ans: Yes, an NRI can continue to make the deposits in the PPF account (which was opened while he was resident Indian) till the maturity. Q-36: Can a NRI extend the term of his PPF account? Ans: No, once the PPF account matures, NRI cant make further extensions. In other words, post-maturity extension is not allowed to NRIs.