Investment Planning

CFP – Module IV

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 Public Provident Fund
• Assured savings scheme for the self employed

• Tax free returns of 8% p.a.

– Review of the “Exempt, Exempt, Exempt (EEE)” regime may change this scenario

• Eligible investors
– Individuals (whether or not salaried)
– NRIs who opened accounts before they became NRIs (can continue contribution till
maturity – no extension)

• Investors not eligible

– Companies, partnership firms, trust, local authority, etc.
– HUF, AOP, BOI (recent exclusion – hence, can continue existing accounts till
maturity but no fresh investment)
– NRIs (other than as described above)

• Only one account per person (across locations)

– Individual can open an account in the name of his/her spouse and children

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 Public Provident Fund (contd.)
• Maximum investment – Rs. 70,000 p.a; minimum – Rs. 500/- p.a.
– PPF limit for investment u/s 80C remains Rs. 70,000

• Interest calculated on the lowest balance between close of the fifth day and last day of
the month

• Not subject to attachment under order or decree of a court. However, can be attached
by IT authorities to recover dues

• Tenure
– Base tenure – 15 years
– Can be continued for a block of 5 years on maturity with or without contribution
– If continued without contribution for a year, will continue as is for the rest of the term
– If continued with fresh subscription, upto 60% of the balance at the beginning of the
extended period can be withdrawn in one or more installments but not more than
one a year

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 Public Provident Fund (contd.)
• Say, account opening year: 2001-02

• Maturity year = end 2002 + 15 = 2017 (01 Apr 2017)

• Withdrawals
– Can start from the 7th year
– For instance first withdrawal in end 2002 + 6 = 2007 – 08
– First withdrawal amount = 50% of lower of the two balances:
• 4 years preceding Mar 2008 = Mar 2004
• 1 year preceding Mar 2008 = Mar 2007

• Loans
– Can start from the 3rd year
– For instance first loan in end 2002 + 2 = 2004 (2003-04)
– For loan taken in 2003-04, amount = 25% of balance at the end of the Mar ’02
– For loan taken in 2004-05 amount = 25% of balance at the end of the Mar ’03
– No loan possible after 2006-07
– Repayable in 36 months
– Interest rate
• First 36 months –
• Thereafter –

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 National Savings Certificate
• Fixed income securities issued by Department of Posts, Government of India

• Duration – 6 years

• Denominations – Rs. 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000

• Transferable between individuals and between post offices

• Can be pledged for a loan with permission of the post master

• Premature encashment possible 3 years from date of purchase

• Rate – 8% pa compounded half yearly

• Principal contribution and interest reinvested eligible for deduction u/s 80C; interest
taxable
– Prior to introduction of Section 80C, interest income was deductible u/s 80L

• Tax saving / ELSS funds are proving more attractive from a returns and liquidity
perspective

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 Senior Citizens Savings Scheme
• Duration – 5 years, extendible by 3 years

• Amount – Minimum – Rs. 1,000; maximum – Rs. 15,00,000

– For retirees, subject to a cap of retirement benefits

• Entry criteria
– Retirees– 55 years or above; account to be opened within 3 months of retirement
– Non retirees– 60 years or above

• Returns – 9% taxable; interest paid quarterly

• Premature termination
– After first year but before completion of 2 years – 1.5% of deposit to be deducted
– On or after 2 years – 1% of deposit to be deducted
– If account extended (after 5 years), account can be closed a year after the extension
for no additional cost

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 Senior Citizens Savings Scheme
• Other features
– Non tradable and non transferable
– NRIs and HUFs not eligible to invest
– Accounts to be opened through post office
– Joint accounts can be opened; joint holder need not be a senior citizen
– Amount less than Rs. 1 lakh can be deposited in cash
– Multiple accounts can be opened subject to the overall ceiling
– PAN number mandated, else self declaration that income does not exceed
exemption limit

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