Public Provident Fund (PPF) - Better Investment Option

Public Provident Fund (PPF)

March 31 is around the corner, and most of us are in confusion as to whether to make additional investment or not. If so, where we need to invest and amount of investment etc.,

In my personal opinion, March 31 is just another date in the calendar, which marks the end of financial year. Never get troubled by this date with Investment planning. 

The real purpose of investment is to get the better returns at the end of the maturity period. Tax saving is just one added advantage. Now a days, most of the people think of investing only for tax saving purpose.  It should not be.

In the context of Investment, I would prefer and rather refer Public Provident Fund (PPF) as the best investment option provided the investment is for a long term. It also got tax savings attached to it.

What is PPF :

• PPF is basically a investment tool which can also be used as Tax Saving tool and also be used as a tool for retirement benefits for those who don’t have the facility of pension.
• The investment term (Period) would be 15 Years.
• Loan facility is also available for the PPF account holders after the maturity of 3 years from the date of investment.
• The entire amount (Along with the interest) can be withdrawn only at the end of 15 years. However, partial withdrawals also permitted, subject to certain ceiling limits. Partial withdrawal is permitted from the 7^th Year onwards with the following conditions :

-      We should make partial withdrawal only once a year

-      Such Withdrawals should not exceed

o   50% of balance in our PPF account at the end of 4^th Year (or)

o   50% of balance in our PPF account at the end of immediately preceeding year. (Eg. If we are in  April 2013, immediate preceeding year would be 2012-13) whichever is lower.

• After the maturity (ie.15 years), we have the option to withdraw the same along with interest or extend it to few more years for any years in block of 5 years.(ie. We can extend to another 5 years / 10 years / 15 years etc).

Who can open PPF Account :

• Any individual can open PPF account
• A Person can have only one PPF account in his name
• Account can be opened by either of the parents for a minor child.
• A Grandparent cannot open a PPF account on behalf of a minor child. However , in case of death of both the parents, Grandparents can act as a guardian of the minor and open an account.

Suitability :

The investment in Public Provident Fund is suitable for all class of the people. According to me this scheme is best suited for Younger Generation and people who don’t have pension facility. Following are the reasons to justify my view point :

• Younger generation in the age group of 20 to 30 is best suited for this PPF investment.
• Reason being, this is a long term investment for 15 years. If we are in the age group of around 25 and we just started earning, PPF would be the best option.
• If we think on long term, the roads ahead will have loads of financial burdens. According to me, the major expenditure in the next 15 to 20 years of life would be for the education of our children.
• The cost of education is mounting high year after year. We are totally uncertain where would it reach after 20 years, when we have children who is ready to pursue Higher Education.
• Better to be safe than sorry. Instead of searching for loans at that time for the higher studies of your children, it would be better to make a small amount of investment every year in PPF and which would turn out to be a lumpsum after the maturity.

How to open PPF account :

• We can open PPF account with State Bank of India and its subsidiaries.
• We can also open PPF account in few post offices.
• For the list of SBI and its subsidiaries authorized to operate PPF account in Chennai, Click here
• We can download the PPF account opening form by clicking here

How to operate :

• The PPF account can be operated as simply as our savings bank account.
• Once we submit our account opening form, we will be given a pass book, which is exactly like our savings bank pass book.
• The minimum amount to be invested in PPF account for a year is Rs.500.
• The maximum amount that can be invested in PPF account for a year is Rs.1,00,000
• Deposits can be made in a maximum of 12 installments a year.
• Interest is flexible and will change every year. For the year 2013-14 , the interest is charged at 8.7% per annum. For the previous year 2012-13, it has been charged at 8.8% per annum.
• The interest credited to our account annually on 31^st March of every year and interest is compounded annually.
• We can operate this PPF account like a savings bank account. There is no restriction on minimum monthly payments as we do in case of insurance. We can pay whenever we have excess money in our hand. And there is no fixed amount. If you some Rs.2,000 excess in your hand, well we can deposit the  same in our PPF account anytime.
• Please be cautious that, the Account may gets discontinued if we didn’t make any deposit for whole the year.

Tax Benefits :

• Investment in PPF account is eligible for the tax deduction under section 80C. The maximum permissible deduction under section 80C is Rs.1,00,000.
• The amount which we receive after the maturity of 15 years is Tax-Free. This is the one best advantage from tax point of view in PPF investment. All other investments are taxable on the withdrawal after the maturity.

Conclusion :

PPF is the a better investment option with high yield after its maturity.  As said already, Tax Benefits are just an added advantage to this PPF investment. Don’t wait. Let we start investing from now on and safeguard our future.

Reference : Money control, rediff, taxguru, simple tax india, chartered club,maxutils.