The Public Provident Fund (PPF), is a favorite among many investors, as it is backed by the Government of India and offers attractive interest. PPF enjoys the EEE benefit. The money invested in PPF will be tax exempt up to Rs 1.5 Lakhs under Section 80C of the Income Tax Act. The money accumulated and withdrawn at maturity, are also tax-free.
Investment in PPF is in fixed income and is not exposed to equities. You can expect steady, risk-free returns from PPF. Currently, PPF offers 7.6% rate of interest for the Quarter (January to March, 2018). This interest is up for review every 3 months. PPF is suitable for investors who do not want to take much risk in investments.
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The PPF has a lock-in period of 15 years. It can be further extended for 5 more years.
These are some of the things you need to know about PPF
All Indian citizens can open PPF account, but you cannot hold more than a single PPF account. PPF account can also be opened on behalf of minors by parents or legal guardians. NRI's are not eligible to open PPF accounts in India. If a person with a PPF account leaves India and becomes an NRI within the 15 year lock-in, his account will be closed as soon as he leaves the country.
The PPF account can be opened in designated post offices or bank branches. You can even open PPF online. PPF account can be transferred from post office to bank account and vice versa.
The investment in PPF can be made either through lumpsum mode or through 12 monthly instalments. The minimum amount to be deposited to keep an account active is Rs 500 and the maximum amount that can be deposited in a financial year is Rs 1,50,000.
If the PPF account holder deposits more than Rs 1.5 lakh a year, the excess amount will be treated as an irregular investment and it will not attract any interest.
The account holder will be eligible for partial withdrawal of PPF at the beginning of the 7th year. According to rules, you can withdraw only 50% of the balance available at the end of fourth year, immediately preceding the year of withdrawal or 50% of the balance at the end of the preceding year.
On the completion of the 15th year, the account holder will be eligible for complete withdrawal. If he wishes to stay invested, he can do so for a period of 5 more years.
An account holder can take a loan against PPF account, from the third year of investment. But, this facility will be available only till the end of the sixth year. You cannot use the entire PPF balance to avail the loan. Loan amount is capped at 25% of the corpus generated at the end of the previous year.
The principal amount borrowed, has to be repaid within 36 months. The interest rate on loan against PPF, will be 2% more than the interest offered on the PPF. Be Wise, Get Rich.
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