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.
Presently, 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 very enthusiastic about 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 benefit 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 maintain the account after maturity for any period without making any further deposits.
The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.
The minimum deposit that you can make into a PPF account in a year is Rs 500. The maximum is Rs 70,000.
A PPF account can be opened by an individual (salaried or non-salaried) on his own behalf or on behalf of a minor of whom he is the guardian or on behalf of a Hindu Undivided Family (HUF) of which he is a member or on behalf of an association of persons or a body of individuals. An individual can open only one account for himself.
The amount you invest is eligible for deduction under the Rs 100,000 limit of Section 80C. On maturity, the entire amount including the interest is non-taxable.
Yes. You can take a loan on the PPF from the third year of opening your account to the sixth year. So, if the account is opened during the financial year 2009-10, the first loan can be taken during financial year 2011-12 (the financial year is from April 1 to March 31).
The loan amount will be up to a maximum of 25 per cent of the balance in your account at the end of the first financial year. You can make withdrawals during any one year from the sixth year.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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