Public Provident Fund/PPF account is becoming popular day by day. With the volatile stock market and the risk attached to the mutual funds, you would always want to invest your hard earned money somewhere which would give you an assured and stable return.
If you are someone who is thinking about saving a substantial amount of money for your retirement and you do not have pensions to support your old age, PPF is the rescue for your safe retirement. Even if you are not thinking much of retirement, there can be other needs for future which you might want to fulfill and you would need to save diligently for a solid amount.
Whatever your financial needs may be, PPF saving is by far the best way to invest your money for a fair rate of interest. The good thing is Central Government regulates PPF. Thus the risk factor to lose your money is negligible and the assurance factor is the highest in terms of returns.
The eligibility criteria and other terms of PPF are as follows:
1. Only Indians residents can open the account. Minors can open the account on behalf of their legal guardian. NRIs cannot open an account.
2. Only one account per person is allowed.
3. You can open a PPF account either in a post office or in a bank. Post office does not have online facility. However, banks like SBI, Bank of Baroda, ICICI, Axis Bank, etc. provide you with an online facility to transfer the PPF amount. The only clause is that you need to have a savings account with the associated bank.
4. You can invest a minimum of 500 INR and maximum of 1, 00,000 INR in a year.
5. If you fail to make the minimum payment of 500 INR in a year, you are charged with a penalty of 50 INR along with the subscription amount.
6. You can make your deposit all at once or in 12 installments in a year. Two or more deposits in a month are allowed. However, the total number of deposits should not exceed 12.
7. The tenure for PPF account is 15 years which is the lock-in period. However, at the end of 15 year you can further extend the tenure for 5 years for any block of period and continue to earn the interest.
Other terms are:
8. Deposit to PPF is tax deductible under 80C of Income Tax Act, 1961.
9. Government of India decides the rate of interest. At present i.e. for the year 2014-2015, the rate of interest is 8.7%.
10. The interest earned on the deposits is compounded and is tax free.
11. Interest is calculated on the lowest balance between the close of the 5th day and the last day of every month. So, amount that are cleared before the 5th of each month are eligible for that month’s interest.
12. Nomination facility is available. However, if there are no nominees to the account, the amount is given to the legal heirs.
13. Loan facility is available from the 3rd financial year excluding the year of deposit.
14. Per-mature withdrawal of the PPF amount is allowed only from the 7th year.
15. The financial year for the PPF account starts from April and ends in March. So, the present financial year is from April, 2014 to March, 2015.
Interest rates:
Interest rates that have been fixed by the government for the past 5 years are as follows:
Year
Rate of Interest
2010-2011
9.5
2011-2012
8.6
2012-2013
8.8
2013-2014
8.7
2014-2015
8.7
The rate of Interest provided by the Government for the past years is kind of one of the highest rate of interest considering the safety and the low risk involved. Also, the tax benefits that it gives and the tax free interest received at the end of maturity makes it all more lucrative.
Calculating PPF:
A simple calculation on the PPF considering the rate of interest as 8.7 % for all the years:
If your fixed yearly deposit is an amount of 100, 000 INR for a period of 15 years, your investment amount is 15, 000, 000 INR and your return would be an amount of 30, 90, 109.93 INR.
Depositing an amount of 50, 000 INR for a period of 15 years, your investment amount is 7, 50, 000 INR and your return would be an amount of 15, 45, 054.97 INR.
If your fixed yearly deposit is an amount of 25, 000 INR for a period of 15 years, your investment amount is 3, 75, 000 INR and your return would be an amount of 7, 72, 527.48 INR.
If your fixed yearly deposit is an amount of 12, 000 INR for a period of 15 years, your investment amount is 1, 80, 000 INR and your return would be an amount of 3, 70, 813.19 INR.
Note: The above calculations are done just to give you an idea on the approximate amount that you could receive at the end of the 15 years tenure. However, these are not the exact figures but a roundabout figure. Various factors might alter your return amount like the variation in the rate of interest by government, the type of deposit that you make (yearly or monthly), if you deposit the amount before the 5th of every month or if you become a defaulter in any particular year. However, the above calculation gives a fair idea on your returns.
Tips:
1.If you make a fixed yearly deposit instead of a monthly deposit for the year of the same amount, the rate of interest earned would be more in case of a fixed yearly deposit.
2. If you make your deposit before the 5th of every month, you can earn more interest on your deposit.
3. To maximize the interest earned on your PPF account, it is advisable to deposit the fixed yearly amount before 5th April every year. This is because the financial year for the PPF account is April-March and the interest earned for the month is considered only if the deposit is made before the 5th.
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