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Public Provident Fund (PPF) - How To Invest PPF Online?

IndianMoney.com Research Team | Updated On Friday, April 02,2010, 08:04 PM

Public Provident Fund (PPF) - How To Invest PPF Online?

 

 

Public Provident Fund (PPF) - How To Invest PPF Online?

What is Public Provident Fund (PPF)?

Public Provident Fund (PPF) is a long-term, government-backed small savings scheme of the Central government started with the aim of providing old age income security to the workers in the unorganized sector and self-employed individuals. Currently, there are more than 30 lakh PPF account holders in India.

An individual can have only one PPF account in India. Also, two adults cannot open a joint PPF account. The aggregate annual contribution towards PPF cannot exceed Rs.70,000 otherwise the excess amount will be returned without any interest.

Currently, the interest rate offered through PPF is around 8 per cent, which is compounded annually. Interest is calculated on the lowest balance between the fifth day and last day of the calendar month and is credited to the account on March 31 every year. So to derive the maximum, the deposits should be made between 1st and 5th day of the month.

People who are interested in liquidity or small-term gains would not be intere PPF because the duration for the investment is 15 years. However, the effective period works out to 16 years i.e., the year of opening the account and adding 15 years to it. The contribution made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate.

The account holder has an option to extend the PPF account for any period in a block of five years after the minimum duration elapses. The account holder can retain the account after maturity for any period without making any additional deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.

Who can open PPF Account?

  • Individual
  • Salaried persons
  • Non-salaried persons
  • NRIs (Non Residential Indians)

People can also pledge on behalf of

  • Minor
  • HUF (Hindu Undivided Family)
  • AOP (Association of Persons)
  • BOI (Body of Individuals)

Things to note

  • A person can have only one PPF account.
  • Two adults cannot open a combined PPF account.
  • The collective annual payment by an individual cannot exceed Rs.70, 000
  • Incase if the investments exceeds Rs. 70000 the excess amount will be returned without any interest.

See Also: Why To Invest In PPF?

Duration

15 years

Rate of interest

8.0% per annum

Where to invest?

Any head post office/Selection grade sub post office and approved nationalized banks.

Who can invest?

Individual (Above 18 years), A guardian on behalf of a minor.

 

How much to invest?

Minimum - Rs. 500/-

Maximum - Rs. 70,000/- in a financial year.

 

 

 

 

Withdrawals

Loan: - From 3rd year to 6th year upto 25% of the amount available in the preceeding second year.

Final :-

·         One withdrawal during any one year at any time after 6 year.

·         The amount of withdrawal is limited to 50% of the balance at credit at the end of 4th year immediately proceeding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower.

Nomination facility

Available

 

 

Tax benefits

Rebate on investment U/S 80C of I.T. Act 1961

Interest income fully expemted from income tax.

Balance held in the P.P.F. account is completely free from wealth Tax.

Other benefits

The balances in the account cannot be attached by any authority normally.

Extension of benefits

Account may be extended for any block period of five years

Things to know about PPF

  • Subscription
  • Penalty in case of non-subscription
  • Where to open
  • Interest rate
  • Tenure
  • Withdrawal
  • Loan
  • Maturity
  • Nomination
  • Tax treatment

PPF Subscription

The yearly contribution to PPF account ranges from a least of Rs.500 to a maximum of Rs.70, 000 payable in multiple of Rs.5 either in lump sum or in convenient installments, not exceeding 12 in a year.

Penalty in case of non-subscription

The account will happen to obsolete if the required minimum of Rs.500 is not deposited in any year. The amount before now deposited will continue to earn interest but with no facility of taking loan or making withdrawals. The account can be regularized by depositing for each year of default, arrears of Rs.500 along with penalty of Rs.100.

Where to open PPF account?

A PPF account can be opened at any branch of State Bank of India or its subsidiaries or in few national banks or in post offices. On opening of account a pass book will be issued wherein all amounts of deposits, withdrawals, loans and repayment together with interest due shall be entered. The account can also be transferred to any bank or post office in India.

See Also: 12 Things To Know Before Opening PPF

PPF Interest rate

Deposits in the account earn interest at the rate notify by the Central Govt from time to time. Interest is designed on the lowest balance among the fifth day and last day of the calendar month and is attributed to the account on 31st March every year. So to derive the maximum, the deposits should be made between 1st and 5th day of the month, as it also enables you to earn interest on your Savings Bank A/c for the previous month.

PPF Tenure

Even though PPF is 15 year scheme but the effectual period works out to 16 years i.e. the year of opening the account and adding 15 years to it. The sum made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate.

PPF Withdrawal

The investor is allowable to make one removal every year beginning from the seventh financial year of an amount not more than 50% of the balance at the end of the fourth year or the financial year immediately preceding the withdrawal, whichever is less. This facility of making partial withdrawals provide liquidity and the withdrawn amount can be used for any purpose.

PPF Example:

If the account is opened during FY 2000-01, the first withdrawal can be effected during FY 2006-07. The fourth financial year immediately preceding the removal will be 2002-03 and the preceding year will be 2005-06. The amount withdraws in the 7th year, FY 2006-07, ending on 31.3.2007 is 50% of the balance to the credit as on 31.3.2003 or 31.3.2006, whichever is lower.

Loan Against PPF

The depositor can take a loan in the third financial year of opening the account for up to 25% of the balance at the end of second previous financial year. Further no loan can be taken after 6th financial year. Ongoing with the preceding example the first loan can be taken through FY 2002-03 for 25% of the balance at the end of FY 2000-01. The loan is to be repaid in 36 months following the month in which loan is taken either in lump sum or in installments. The fresh loan will be given only after previous loan is repaid in full with interest at 1% p.a. over the interest paid on PPF. Moreover, if the loan is not repaid within stipulated time, the interest would be charged @ 6% p.a. instead of 1% p.a. In the event of death of subscriber, his legal heirs/nominee shall repay the interest on the loan.

PPF Maturity

On maturity, the account can be closed by making an application for withdrawal of entire balance together with interest after adjustments, if any. However, the account can also be extended for any period in a block of five years at each time, with or without fresh contribution.

If the account is continued without fresh contribution, the entire sum can be withdrawn either in lump sum or in installments not exceeding one in a year. If continued with fresh subscriptions, withdrawal is permitted for upto 60% of the balance at the beginning of each extended period in one or more installments, but not more than once a year.

PPF Nomination

One or more nominations can be made by the subscriber to accept the amount standing to his credit in the event of his death. Nomination once made can also be cancelled or varied. If the nominee is a minor the depositor can assign any person to receive the amount due during the minority of the nominee. The capability of nomination is also available in case of HUF but not for minors. In the event of death of subscriber the amount standing to his credit after making adjustments, if any shall be paid to the nominee or nominees on making a request by them together with proof of death of subscriber. If any nominee is dead, the proof of death of nominee is also required. However, if the balance is not withdrawn it will continue to earn interest. Fresh contributions and limited withdrawals by nominee are not acceptable after the death of the account holder. It is sensible to open a savings account of the nominee or nominees in the same bank and mention this number in the PPF account opening form. Also, since a single cheque is issued in favour of all the nominees, it would be prudent for the nominees to open a joint saving bank account. Where there is no nomination the balances after making adjustment shall be paid to the legal heirs on production of succession certificate/probate acquire which requires lot of time and paperwork. Therefore, to reduce hardships if the balance is up to Rs1 lakh, it will be paid to legal heirs on production of i) a letter of indemnity, ii) an affidavit, iii) a letter of disclaimer and iv) the death certificate. But in practice, if the bank manager is convinced and closely acquainted, he usually pays you the entire sum of money.

PPF Tax Benefits

The contributions made to the PPF account are eligible for deduction u/s 80C of Income Tax Act. The interest earned and the entire amount received on maturity or premature withdrawal is completely tax-free. Moreover, the balance held in PPF account is fully exempt from wealth tax, without any limit.

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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