Investment Guide- Series 1-Part 1-PPF

For the general public and mostly salaried class, investment terminology is mostly limited to save for tax benefits and take some life insurance on advice of some agents. For the sake of this class of public, I am starting a investment guide to enable them take their investment decisions wisely and keep a balance between High risk and Low risk instruments.

In this series 1, I will share all my experiences with these investment schemes and the value they bring in ones life.

PART 1-PPF – Public Provident Fund

Public provident fund is a very popular investment scheme among all classes due to its associated benefits. It is a long-term investment scheme popular among individuals who want to earn high and risk free returns.

Why open a PPF account?

A Public provident fund scheme is ideal for individuals who wants low risk investment. This plan is backed up by the government to protect the financial needs of the public in India. Invested funds in the PPF account are not market-linked and the interest rates are decided by the government of India.

Features of A PPF Account

The key characteristics of a public provident fund scheme can be listed as follows –

• Investment tenure

A PPF account has a lock-in period of 15 years, before which funds cannot be withdrawn completely. This tenure can be extended in blocks of 5 Years.

•  Principal amount

A minimum of Rs. 500 and a maximum of Rs. 1.5 Lakh can be invested in a provident fund scheme annually. As per current income tax laws, one can invest a maximum of Rs 1.5 lakh in PPF in a single financial year. The investment can be made either as a single lump sum or in maximum 12 monthly contributions. Investment in a PPF account has to be made every year so that the account remains active.

• Loan against investment

Public provident funds provide the benefit of availing loans against the investment amount. However, the loan will only be granted if it is taken at any time from the beginning of 3rd year till the end of the 6th year from the date of activation of account.

Eligibility Criteria

Indian citizens residing in the country are eligible to open a PPF account in his/her name. Minors are also allowed to have a Public provident fund account in their name, provided it is operated by their parent.

NRI’s are not eligible to open PPF accounts.

Interest on a PPF Account

The interest payable on public provident fund scheme is determined by the Central Government of India. The current PPF interest rate for the April 2020 -June 2020 quarter is 7.10%. The PPF interest is calculated every month on the lowest balance at the credit of the account balance between the close of the fifth day and the last day of every month.

How to Open a PPF Account

PPF account can be opened offline as well as online. Offline applications can be submitted at any Bank Branch / Post office. Online PPF accounts can also be opened by visiting Bank /Post office portals.

The following documents have to be produced for opening of a public provident fund account –

1. KYC documents verifying the identity of an individual, such as Aadhaar, Voter ID, Driver’s License, as per OVD (officially valid documents) prescribed by RBI under KYC-AML laws etc.
2. PAN card.
3. Residential address proof.
4. Form for nominee declaration.
5. Passport sized photograph.

Tax Benefits

Public Provident Fund scheme is very attractive scheme for general public in India as it comes in EEE segment of investment ie Investment is exempted (max Rs 1.50 Lakhs per annum), Interest is exempted and Maturity amount is exempted from tax.

Withdrawal

Mandatory lock-in of 15 years is applicable on the principal amount invested. In case of emergencies related to specific end-uses, partial withdrawal can be made. However, this amount can only be extracted only after the completion of 5 years of activation of the account. Up to 50% of the total balance can be withdrawn in one transaction each financial year succeeding in the 4th year.

It should be noted that funds invested in a PPF account cannot be liquidated before the completion of the maturity period.

Individuals looking for long-term risk-free investment options providing stable yields can easily opt for this government-backed instrument.

As suggested by one of my subscriber, I am adding a small piece of information for everyone’s benefit- calculation

Sl No	Investment yearly	No of Years	Total Principle	Total Interest	Maturity
1	10000	30	300000	730064	1030064
2	20000	30	600000	1460123	2060123
3	30000	30	900000	2190169	3090169
4	40000	30	1200000	2920249	4120249
5	50000	30	1500000	3650302	5150302
6	100000	30	3000000	7300605	10300605
7	150000	30	4500000	10950907	15450907
Interest rate taken at 7.10%

As we can observe from the table above, a salaried person of 30 Years having yearly package of Rs 5-6 Lakhs and invests at least 10% of his salary to this scheme can get approx Rs 50-60 Lakhs at the time of retirement besides getting a tax benefit of 10-20% whichever applicable every year.

If you don’t have a PPF account, open one and start investing your surplus amount.